In the Matter of Paul Murphy, Respondent,v.New York State Division of Housing and Community Renewal, Appellant, SouthBridge Towers, Inc., Respondent.BriefN.Y.September 4, 2013 To be argued by: BRIAN A. SUTHERLAND 15 minutes requested Supreme Court, New York County, Index No. 101005/2010 State of New York Court of Appeals 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., Respondent. BRIEF FOR APPELLANT BARBARA D. UNDERWOOD Solicitor General STEVEN C. WU Special Counsel to the Solicitor General BRIAN A. SUTHERLAND Assistant Solicitor General of Counsel ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Appellant 120 Broadway New York, New York 10271 (212) 416-8096 (212) 416-8962 (facsimile) Dated: November 30, 2012 i TABLE OF CONTENTS Page TABLE OF AUTHORITIES.............................................................iii PRELIMINARY STATEMENT ........................................................ 1 QUESTIONS PRESENTED ............................................................. 4 STATEMENT OF THE CASE .......................................................... 5 A. Statutory and Regulatory Framework........................... 5 1. The annual income-affidavit requirement ............. 5 2. Succession applications ........................................... 7 B. Factual Background...................................................... 10 1. The Murphys’ failure to file income affidavits for 1998 and 1999 .................................................. 10 2. Paul Murphy’s succession application.................. 11 3. DHCR’s order denying the appeal ........................ 15 C. Procedural History........................................................ 16 JURISDICTION .............................................................................. 17 ARGUMENT .................................................................................. 18 POINT I - MURPHY’S UNDISPUTED FAILURE TO MEET DHCR’S INCOME-AFFIDAVIT REQUIREMENT SUPPORTS THE DENIAL OF HIS SUCCESSION APPLICATION................. 18 ii TABLE OF CONTENTS (Cont'd) Page A. An Applicant Cannot Obtain Tenancy by Succession Without Having Been Listed on Income Affidavits. .........................................................19 B. The Appellate Division Had No Authority to Create an Exception to DHCR’s Lawful Regulations....................................................................24 POINT II - SUBSTANTIAL EVIDENCE SUPPORTS DHCR’S REJECTION OF MURPHY’S EXCUSE ...................................................................27 CONCLUSION ................................................................................31 iii TABLE OF AUTHORITIES Cases Page(s) Heckler v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S. 51 (1984)....................................................................... 23 Matter of Campagna v. Shaffer, 73 N.Y.2d 237 (1989) .................................................................. 25 Matter of Cognata v. DHCR, 82 A.D.3d 482 (1st Dep’t 2011)................................................... 21 Matter of Ellis v. Mahon, 11 N.Y.3d 754 (2008) .................................................................. 24 Matter of Gaines v. DHCR, 90 N.Y.2d 545 (1997) .................................................................. 24 Matter of Greichel v. DHCR, 39 A.D.3d 421 (1st Dep’t 2007)................................................... 21 Matter of Meyers v. DHCR, 68 A.D.3d 1518 (3d Dep’t 2009), lv. denied, 14 N.Y.3d 714 (2010)........................................................................................... 20 Matter of Miney v. Donovan, 68 A.D.3d 876 (2d Dep’t 2009), lv. denied, 15 N.Y.3d 712 (2010)........................................................................................... 20 Matter of Procaccino v. Stewart, 25 N.Y.2d 301 (1969) .................................................................. 24 Matter of Renda v. DHCR, 22 A.D.3d 382 (1st Dep’t 2005)................................................... 20 Matter of Schorr v. Department of Housing Preservation and Development, 10 N.Y.3d 776 (2008) ............................................................ 25, 26 iv TABLE OF AUTHORITIES (Cont’d) Cases Page(s) Matter of State Div. of Human Rights (Granelle), 70 N.Y.2d 100 (1987)...................................................................28 Matter of Taylor v. DHCR, 73 A.D.3d 634 (1st Dep’t 2010)...................................................21 Matter of Terrace Ct., LLC v. DHCR, 79 A.D.3d 630 (1st Dep’t 2009), aff’d, 18 N.Y.3d 446 (2012).....24 Morales v. County of Nassau, 94 N.Y.2d 218 (1999)...................................................................25 Parsa v. State, 64 N.Y.2d 143 (1984)...................................................................22 United States v. Boyle, 469 U.S. 241 (1985) .....................................................................22 United States v. Wolfson, No. 06-cr-313 (S.D.N.Y.) .......................................................15, 28 State Statute Private Housing Finance Law § 31.............................................................................................5, 6 § 32...............................................................................................26 Regulations 9 N.Y.C.R.R. (pre-2009 reorganization) § 1725-2.9 ....................................................................................27 § 1727-2.1 ......................................................................................7 § 1727-2.2 ......................................................................................5 § 1727-2.3 ................................................................................5, 15 § 1727-2.4 ......................................................................................5 § 1727-2.5 ....................................................................................15 v TABLE OF AUTHORITIES (Cont’d) Regulations Page(s) 9 N.Y.C.R.R. (pre-2009 reorganization) (cont’d) § 1727-3.6 ...................................................................................... 9 § 1727-4.2 ................................................................................ 6, 10 § 1727-5.3 .................................................................................. 6, 7 § 1727-8.2 ................................................................................ 9, 20 § 1727-8.3 ................................................................................ 8, 19 9 N.Y.C.R.R. § 1700.5 (current)........................................................................ 27 § 1727-8.2 (2009)........................................................................... 9 Miscellaneous Authority Management & Supervision of Mitchell-Lama Hous. Cos., 31 N.Y. Reg. (Nov. 10, 2009) .................................................. 9, 20 PRELIMINARY STATEMENT To provide affordable housing to persons of low and moderate income, the Legislature enacted the Limited-Profit Housing Companies Act, also known as the Mitchell-Lama laws. The Act gives private housing companies financial incentives to develop low and moderate income housing by offering assistance to developers in the form of long-term, low-interest government mortgage loans and real estate tax exemptions. In return for these financial benefits, developers agree to regulations concerning rent, profit, and tenant selection. The New York State Division of Housing and Community Renewal (DHCR) promulgates and enforces rules to carry out the Mitchell-Lama program. Because subsidized housing is scarce, most Mitchell-Lama applicants spend years on a waiting list before qualifying for a subsidized apartment. But not all: As a narrow exception to this rule, DHCR regulations give a preference in admission to family members of tenants who vacate a subsidized apartment. This pathway to tenancy is commonly called succession. 2 For over twenty years, DHCR regulations have un- ambiguously limited succession to individuals who were listed on income affidavits filed by the tenant during the two years before the tenant vacated the apartment. There is no dispute in this case that petitioner Paul Murphy failed to meet this essential prerequisite to succession, and on that basis DHCR determined that he was ineligible to succeed to his mother’s subsidized apartment. In square conflict with both DHCR’s regulations and consistent precedent upholding the agency’s enforcement of its income-affidavit requirement, the Appellate Division, First Department granted petitioner’s article 78 petition and held that Murphy was entitled to a taxpayer-subsidized apartment. The court created a new judicial exception to DHCR’s regulations, permitting succession applicants to proffer an “excuse” to explain why the vacating tenant failed to file required income affidavits. The court then held that Murphy’s excuse in this case precluded DHCR from denying his succession application—even though the 3 agency had expressly considered and rejected the factual bases for Murphy’s proffered explanation. The Appellate Division’s ruling improperly revised duly promulgated agency regulations to promote the court’s own policy preferences—thereby impeding the orderly administration of Mitchell-Lama housing and favoring succession applicants over low-income persons on long waiting lists. Murphy has never disputed the validity and applicability of the regulations at issue here. And because there is no plausible argument that Murphy meets the eligibility criteria for succession to a Mitchell-Lama apartment, the succession regulations must be given effect. Even if there were some basis for excusing a succession applicant’s failure to comply with DHCR’s eligibility criteria (and there is none here), the Appellate Division erred by crediting Murphy’s excuse in this case. In its administrative ruling, DHCR explicitly rejected Murphy’s proffered explanation for why his name did not appear on required income affidavits. Substantial evidence supports DHCR’s determination, and the lower court 4 should not have replaced DHCR’s reasonable assessment of the facts with its own. For these reasons and others stated below, this Court should reverse. QUESTIONS PRESENTED 1. Did the lower courts have authority to create a judicial exception to DHCR’s regulations requiring applicants for succession to Mitchell-Lama housing to show that they were listed on prior annual income affidavits? 2. Even assuming that the lower courts had the authority to rewrite DHCR’s unambiguous succession regulations, did the lower courts properly overturn the agency’s finding that petitioner Paul Murphy failed to adequately explain the absence of his name on required income affidavits? 5 STATEMENT OF THE CASE A. Statutory and Regulatory Framework 1. The annual income-affidavit requirement The Mitchell-Lama laws provide that housing companies shall make their publicly subsidized rental units available to “persons or families of low income.” Private Housing Finance Law (PHFL) § 31(2)(a). To ensure that public subsidies are directed to those in genuine need of aid, a housing company must determine the aggregate annual income of persons living in a Mitchell-Lama apartment on a yearly basis. See 9 N.Y.C.R.R. §§ 1727-2.2, 1727- 2.3.1 The tenant has the responsibility to report the household’s aggregate annual income to the housing company on a form called “Occupant’s Certification of Income,” i.e., the annual income affidavit. See id. §§ 1727-2.4, 1727-2.5(a). This affidavit lists the persons who reside in the apartment at the time of filing, and the income that each person earned during the previous calendar year 1 Unless otherwise noted, all citations are to the regulations in effect in 2004, when petitioner submitted his application for succession rights (A.R. 354). A copy of these regulations has been attached as an addendum to this brief. 6 (see, e.g., A.R. 72-79). The housing company then calculates rent based on a schedule approved by DHCR. See PHFL § 31(1); 9 N.Y.C.R.R. § 1727-4.2. A housing company receiving subsidies under the Mitchell- Lama laws may not admit persons or families whose “probable annual aggregate income” exceeds the median income for individuals or families in the area in which the housing project is located. PHFL § 31(2)(a). After admission, if the household’s income for the prior calendar year exceeds the maximum allowable income for the area, the housing company must impose a rental surcharge of up to fifty percent of the admission limit. See PHFL § 31(3); 9 N.Y.C.R.R. § 1727-4.2(d). The Mitchell-Lama laws also authorize a housing company to evict a person or family whose aggregate income exceeds the median by more than twenty- five percent. See PHFL § 31(3); 9 N.Y.C.R.R. § 1727-5.3(a)(7). DHCR’s regulations reflect the paramount importance of timely filing of annual income affidavits. Subpart 1727-2, titled “determination of eligibility for admission or continued occupancy,” begins with the declaration that “[p]roper determination of income 7 is extremely important as it constitutes one of the chief qualifications necessary under law for admission or continued occupancy of a person or family” in a Mitchell-Lama apartment. 9 N.Y.C.R.R. § 1727-2.1. Moreover, DHCR may authorize a housing company to commence eviction proceedings against a person who fails to file annual income affidavits, see id. § 1727-5.3(a)(7), and such proceedings must be given priority over proceedings against “over-income tenants,” id. § 1727-5.3(f). 2. Succession applications While nothing in the Mitchell-Lama laws requires housing companies to give preference in admission to family members of tenants, DHCR has determined that when a Mitchell-Lama tenant vacates an apartment, a family member residing with the tenant should have an opportunity to demonstrate that he meets qualifying criteria and, if he qualifies, to become the tenant of record for the vacated apartment. This policy, as set forth in agency regulations, balances the interests of family members who have resided in an apartment for a significant period of time 8 against the interests of other low-income persons in the community who also seek affordable housing. In 1991, DHCR issued the succession regulations at issue in this case. The regulations provide that a member of the tenant’s family can take over as the tenant of record for a subsidized apartment if—and only if—he meets certain mandatory require- ments. First, the succession applicant must have lived with the tenant in the apartment as a primary residence for at least two years. Second, the applicant must have “been listed on the [tenant’s] income affidavit” for the two-year period “immediately prior to the permanent vacating of the housing accommodation by the tenant.” 9 N.Y.C.R.R. § 1727-8.3(a). The regulations also require an applicant to present specific proof of residency in the tenant’s apartment. The 1991 rule provided that “[p]roof of such residency shall be the listing of such person on the annual income affidavit . . . together with other 9 evidence such as certified copies of tax records, voting records, [etc.].” Id. § 1727-8.2(a)(5) (emphasis added).2 In 2009, DHCR renumbered and amended its regulations governing succession rights. The current version sets forth the same qualifying criteria for succession applicants, with minor organizational changes. See id. § 1727-8.2(a) (2009). During the rulemaking, DHCR rejected a commenter’s suggestion that succession applicants be able to demonstrate residency without evidence of listing on the annual income affidavit. The agency noted that “[t]he regulations have always required a succession applicant to provide documentary evidence of primary residence and to have been listed on the annual income affidavit for the required period of time.” Management & Supervision of Mitchell- Lama Hous. Cos., 31 N.Y. Reg. 9, 11 (Nov. 10, 2009). 2 The regulation also states that “primary residence” may be established by the filing of a Notice of Change to Tenant’s Family. See 9 N.Y.C.R.R. §§ 1727-3.6, 1727-8.2(a)(5). This document is not at issue here. Murphy does not claim that he was listed on such Notice, and in any event, the filing of a Notice does not establish primary residence for the two-year period before the tenant vacated. The tenant must also demonstrate that he was listed on income affidavits due after he appeared on the Notice. 10 B. Factual Background 1. The Murphys’ failure to file income affidavits for 1998 and 1999 In 1981, petitioner’s parents, Paula and Kevin Murphy, began renting a subsidized apartment located at 90 Gold Street in Manhattan from Southbridge Towers, a Mitchell-Lama housing company (Administrative Record (A.R.) 60, 69). Paula Murphy filed annual income affidavits for calendar years 1990 to 1997, listing herself and her two sons (petitioner and her other son Robert) as the occupants of the apartment (A.R. 72-79). In 1997, the Murphy household’s reported income was nearly double the “maximum allowable income,” and Southbridge Towers applied a fifty percent surcharge to the rent (A.R. 79)—the maximum monetary penalty allowable. See 9 N.Y.C.R.R. § 1727-4.2(d). Ms. Murphy did not file income affidavits for calendar years 1998 and 1999 (A.R. 249-250), which were due on April 30 of 1999 and 2000, respectively. Paul Murphy was eighteen years old when the affidavit for 1998 was due (see A.R. 235). Tax documents for those years show that the Murphy household earned a six-figure annual income that was more than double the maximum 11 allowable income for the unit in which the Murphys resided (see A.R. 287, 496 (1998); 350, 513 (1999)). Southbridge Towers imposed a fifty percent rent surcharge on Paula Murphy as a penalty for her failure to file income affidavits during those years (A.R. 352, 355-357). Paula and Kevin Murphy eventually moved from 90 Gold Street in Manhattan to 2 Grace Court Alley in Brooklyn Heights (A.R. 393), just a few blocks from the private high school that Paul Murphy attended until his graduation in June 1999 (A.R. 8). In May 2001, Paul Murphy filed an income affidavit for calendar year 2000, listing himself and his uncle James Soucy as the occupants of the apartment at 90 Gold Street (A.R. 80; see also A.R. 81-86 (income affidavits for 2001-2006)). 2. Paul Murphy’s succession application In 2004, when he was twenty-three years old, Paul Murphy submitted an application to Southbridge Towers, seeking 12 succession rights to the apartment for himself and James Soucy.3 The application was based on Kevin Murphy’s—not Paula Murphy’s—purported occupancy of the apartment, and asserted that Kevin Murphy had permanently vacated the apartment in “July 2001” (A.R. 354), even though Kevin Murphy had not been listed on any income affidavit since 1990. Southbridge Towers denied Paul Murphy’s application because he was not listed on income affidavits for 1998 and 1999, as required by DHCR regulations (A.R. 7). Murphy appealed to DHCR. Murphy, who was represented by counsel, initially claimed that the required income affidavits were “in the possession, or should be in the possession of the Housing Company,” and that his application could not be denied because of Southbridge Towers’ alleged “failure to maintain its files” (A.R. 4). Murphy further argued that because “the shareholder vacated in 2001, the 1998 3 James Soucy did not seek judicial review of DHCR’s order at issue denying succession rights, and he is not a party to this article 78 proceeding. 13 income affidavit is not relevant to the succession determination” (A.R. 4). Seven months later, Murphy admitted to DHCR that the income affidavits for calendar years 1998 and 1999 did not exist and had never been filed (A.R. 249). Murphy also claimed, for the first time, that the affidavits were not filed because of unspecified “mismanagement issues at the Housing Company” (A.R. 250). And, in another deviation from his initial application, Murphy asserted that his mother, not his father, was the tenant who had resided in the apartment (A.R. 249). In November 2007 (A.R. 260), petitioner submitted unsworn statements from Paula and Kevin Murphy in which each stated that they vacated the apartment in January 2000 (A.R. 262 [¶ 3], 264 [¶ 3]), and not in July 2001, as petitioner had originally claimed (see A.R. 4, 354).4 Paula Murphy also stated that she did 4 Ms. Murphy’s claim that she vacated the apartment in January 2000 is inconsistent with the record. Her tax returns dated April 8, 2000, list her address as 90 Gold Street (A.R. 459, 461, 467), and she voted in the assembly district for that address on November 7, 2000 (A.R. 393, 395). DHCR expressed doubt (continued on next page) 14 not file income affidavits for 1998 and 1999 because of purported “corruption” at the housing company: The reason I did not file income affidavits in 1998 and 1999 was that there was corruption at Southbridge Towers and I did not want to provide my financial information. A Southbridge Towers Board Member and DHCR employee, Judy Wolfson, was indicted on embezzlement charges. I knew that if I did not file income affidavits I would pay the surcharge. (A.R. 263 [¶ 4].) Ms. Murphy provided no contemporaneous evidence to support her claim that concerns about “corruption” prevented her from filing income affidavits for 1998 and 1999. And the explanation she provided in her unsworn 2007 statement contained serious factual inaccuracies. Most importantly, Jody (not Judy) Wolfson was neither a Southbridge board member nor indicted on criminal charges during the time that Ms. Murphy lived in the apartment. Ms. Wolfson did not even run for a position on the Southbridge board until 2002 (R. 132 [¶ 57])—two years after Ms. Murphy claimed to have vacated the apartment. about the alleged departure date, but adopted it for the purposes of its determination (see R. 54). 15 And Ms. Wolfson was not arrested until December 2005. See United States v. Wolfson, No. 06-cr-313 (S.D.N.Y.) (docket minute entry dated Dec. 27, 2005). Moreover, Ms. Wolfson was not indicted on embezzlement charges; she waived indictment and pleaded guilty to mail fraud charges stemming from her attempt to circumvent DHCR’s succession regulations—by filing false income affidavits. See id. (dkt. nos. 9-11 and accompanying minute entries). In addition, Ms. Murphy’s explanation is inconsistent with her claim that she “permanently vacated” the apartment in January 2000 (A.R. 262 [¶ 3]). The income affidavit for 1999 was not due until April 30, 2000. If Ms. Murphy left the apartment in January 2000, she could not have filed an income affidavit for 1999 because only tenants complete that form. See 9 N.Y.C.R.R. § 1727-2.5. 3. DHCR’s order denying the appeal DHCR rejected Paul Murphy’s appeal because his name did not appear on the annual income affidavit for calendar year 1998 (R. 55). DHCR noted that “the appearance of a succession 16 claimant’s name on the subject apartment’s annual affidavits executed during the applicable . . . period is a separate and coextensive requirement for obtaining succession rights to the unit’s tenancy.” As a result, Murphy could not obtain succession rights under DHCR’s regulations. (R. 55.) DHCR also addressed petitioner’s contention (A.R. 250) that Ms. Murphy declined to file income affidavits for 1998 and 1999 because of “mismanagement issues” at Southbridge. The agency specifically found that this “purported excuse for the failure to submit the Apartment’s required annual affidavits is unavailing” (R. 56). The agency noted that Murphy had not explained how his mother’s withholding of the required affidavits would alleviate any alleged concern, and he had not submitted any evidence to show that anyone actually had such concerns at the time the affidavits were due to be filed. C. Procedural History Murphy filed an article 78 petition challenging DHCR’s determination (R. 29-45). Supreme Court, New York County, (Schlesinger, J.) granted the petition, annulled DHCR’s deter- 17 mination, and held that Murphy was “entitled to succession rights” (R. 15). The Appellate Division, First Department affirmed, holding, in contradiction to DHCR’s regulations, that “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” (R. 184) (emphasis added; citations omitted). Applying this newly created exception to Murphy’s petition, the Appellate Division concluded that “petitioner’s mother offered . . . an excuse which was supported by the record” (R. 184). But the court nowhere acknowledged, let alone addressed, DHCR’s explicit rejection of Ms. Murphy’s excuse. This Court granted leave to appeal. JURISDICTION The Court has jurisdiction over this matter under C.P.L.R. 5602(a) because it originated in Supreme Court, and the appeal is from an order of the Appellate Division that finally determined the proceeding and that is not appealable as of right (R. 183-185). The Appellate Division’s order disposed of all issues in the 18 proceedings, within the meaning of C.P.L.R. 5611. This Court granted DHCR’s motion for leave to appeal on September 13, 2012 (R. 187-188). ARGUMENT POINT I MURPHY’S UNDISPUTED FAILURE TO MEET DHCR’S INCOME-AFFIDAVIT REQUIREMENT SUPPORTS THE DENIAL OF HIS SUCCESSION APPLICATION For over twenty years, DHCR’s regulations have un- ambiguously required succession applicants to demonstrate that their names appeared on income affidavits filed during the two years before the prior tenant vacated the apartment. DHCR has for decades interpreted these regulations as imposing “a separate and coextensive requirement for obtaining succession rights” (R. 55). In other words, under settled agency practice, a succession applicant’s noncompliance with this income-affidavit requirement leads to the denial of his application—leaving the apartment available to a low-income family on the waiting lists. 19 In direct conflict with the language of the succession regulations, the Appellate Division held that DHCR is required to ignore its income-affidavit requirement whenever (1) the succession applicant proffers some excuse for his noncompliance, and (2) the applicant provides other documentation to prove primary residency during the relevant time period (R. 184). But this ruling finds no support in the succession regulations. And the Appellate Division had no authority to superimpose its own policy preferences on DHCR’s duly promulgated regulations. A. An Applicant Cannot Obtain Tenancy by Succession Without Having Been Listed on Income Affidavits. The Appellate Division’s ruling ignores the plain language of DHCR’s regulations and improperly marginalizes the role that the income affidavit plays in determining succession. DHCR’s regulations expressly require both that the applicant “resided . . . in the housing accommodation as a primary residence,” and that the applicant “has been listed on the income affidavit.” 9 N.Y.C.R.R. § 1727-8.3(a). The regulations also expressly provide that the income affidavit is not simply one of many 20 interchangeable ways to prove primary residency; to the contrary, the regulations provide that “[p]roof of such residency shall be the listing of such person on the annual income affidavit.” Id. § 1727- 8.2(a)(5) (emphasis added); see also Matter of Renda v. DHCR, 22 A.D.3d 382, 383 (1st Dep’t 2005) (noting that annual income affidavits are “by definition necessary . . . to prove primary residence”). In 2009, in the course of amending its succession regulations, DHCR reiterated that “[t]he regulations have always required a succession applicant . . . to have been listed on the annual income affidavit for the required period of time.” 31 N.Y. Reg. 9, 11. Courts have consistently held that an applicant is ineligible for Mitchell-Lama succession if he or she is not listed on prior income affidavits. See Matter of Miney v. Donovan, 68 A.D.3d 876, 878 (2d Dep’t 2009), lv. denied, 15 N.Y.3d 712 (2010); Matter of Meyers v. DHCR, 68 A.D.3d 1518, 1518-20 (3d Dep’t 2009), lv. denied, 14 N.Y.3d 714 (2010). Indeed, before this case, even the First Department had recognized that the income-affidavit requirement is an independent prerequisite to succession. See, 21 e.g., Matter of Cognata v. DHCR, 82 A.D.3d 482, 482 (1st Dep’t 2011); Matter of Taylor v. DHCR, 73 A.D.3d 634, 634 (1st Dep’t 2010); Matter of Greichel v. DHCR, 39 A.D.3d 421, 422 (1st Dep’t 2007). DHCR’s long-standing income-affidavit requirement has protected the integrity of the Mitchell-Lama subsidized housing program and promoted the orderly administration of succession tenancy in two respects. First, DHCR’s succession eligibility rule provides an additional incentive for tenants to submit accurate income affidavits. Housing companies and supervising agencies like DHCR rely heavily on income affidavits to verify and determine the residents of subsidized apartments, the aggregate income of those residents, and the appropriate amount of rent. Indeed, the timely filing of accurate income affidavits is of such paramount importance that a housing company is authorized to evict a tenant solely for failing to file the required affidavit—and such proceedings must be prioritized even over proceedings against tenants who are ineligible for rental subsidies because their 22 income is too high. See supra at 7. Conditioning the privilege of succession on the correct filing of income affidavits thus properly reflects and reinforces the importance of these documents to the administration of the Mitchell-Lama program. Second, an independent income-affidavit requirement enables housing companies and agencies to administer succession tenancy more efficiently. Whether a succession applicant is listed in prior income affidavits is readily verifiable by reference to existing records that tenants are already required to file. Agencies regularly adopt such bright-line rules in order to facilitate the administration of statutory programs—for example, in setting deadlines or eligibility requirements. And courts have consistently recognized that such clear rules protect the public fisc and promote the orderly administration of benefits programs. See Parsa v. State, 64 N.Y.2d 143, 147 (1984) (eschewing “rough justice” and observing rule that contractor must obtain approval from state comptroller for certain disbursements); United States v. Boyle, 469 U.S. 241, 249 (1985) (“our system of self-assessment in the initial calculation of a tax simply cannot work on any basis 23 other than one of strict filing standards”); Heckler v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S. 51, 63 (1984) (“Protection of the public fisc requires that those who seek public funds act with scrupulous regard for the requirements of law”). By contrast, the Appellate Division’s alternate rule—that applicants may proffer an “excuse” for failing to file prior income affidavits—would require DHCR to devote scarce resources to investigate a wide variety of potential explanations, many arising from years-old circumstances. The undefined nature of the “excuse” exception only heightens the administrative burden. Neither the Appellate Division nor Supreme Court offered any guidance on the types of excuses that they (or other courts) might find acceptable in the future—indeed, in this case both courts accepted without explanation an excuse that DHCR had expressly rejected. The factual and legal uncertainty surrounding this judicially created and administered “excuse” exception necessarily impedes DHCR’s ability to administer its own succession rules. 24 B. The Appellate Division Had No Authority to Create an Exception to DHCR’s Lawful Regulations. Because DHCR’s decades-long enforcement of an indepen- dent income-affidavit requirement represents a reasonable interpretation of its own regulations, the Appellate Division was required to defer to that interpretation here. See Matter of Gaines v. DHCR, 90 N.Y.2d 545, 548-49 (1997). Instead, the lower court effectively amended DHCR’s rules to add an “excuse” exception that appears nowhere in the text of the regulations. As this Court has long recognized, however, judges have no discretion to write exceptions into otherwise valid regulations when the agency itself has declined to do so. See Matter of Ellis v. Mahon, 11 N.Y.3d 754, 755 (2008) (reiterating that “Appellate Division has no discretionary authority or interest of justice jurisdiction in [a] CPLR article 78 proceeding”); Matter of Procaccino v. Stewart, 25 N.Y.2d 301, 304 (1969) (“courts have no alternative but to confirm” an agency’s determination made in accordance with lawful procedure); Matter of Terrace Ct., LLC v. DHCR, 79 A.D.3d 630, 635-36 (1st Dep’t 2009) (agency 25 determination must be upheld despite “a court’s opinion that a particular outcome is not fair or is not in the interests of justice”), aff’d, 18 N.Y.3d 446 (2012). Such judicial amendments improperly interfere with the Legislature’s policy decision to delegate administrative authority to a particular agency. See Morales v. County of Nassau, 94 N.Y.2d 218, 224 (1999) (“interfere[nce] with the Legislature’s policy choices [is] beyond the realm of judicial authority”); Matter of Campagna v. Shaffer, 73 N.Y.2d 237, 242-43 (1989) (noting that an agency acting within its delegated authority necessarily promotes the Legislature’s “vision of societal policy choices”). This Court applied these principles in Matter of Schorr v. Department of Housing Preservation and Development, unanimously reversing an Appellate Division decision that, as in this case, attempted to excuse a succession applicant’s failure to meet regulatory eligibility criteria. In that case, the Appellate Division had blocked New York City’s Department of Housing Preservation and Development (HPD) from enforcing its succession rules because the housing company had acquiesced to the petitioner’s 26 tenancy.5 This Court reversed, holding that the lower court’s judicially created exception would “impermissibly prevent HPD from executing its statutory duty to provide Mitchell-Lama housing only to individuals who meet the specified eligibility requirements.” 10 N.Y.3d 776, 779 (2008). Matter of Schorr is controlling here. Like HPD, DHCR has been expressly delegated the authority to administer the Mitchell- Lama program, see PHFL § 32(3), and it accordingly “is statutorily required to enforce the Mitchell-Lama Law and regulations,” including its succession rules. Matter of Schorr, 10 N.Y.3d at 778. Like the petitioner in Matter of Schorr, Paul Murphy does not challenge the validity of the applicable regulations, nor can he show compliance with them. On those facts, DHCR was plainly authorized to deny his succession application and make the 5 HPD is the supervising agency for Mitchell-Lama developments that receive municipal assistance. Affirmation of Karen M. Griffith in Support of Motion for Leave to Participate as Amicus Curiae in Support of Motion for Leave to Appeal, July 12, 2012, at ¶ 3 (motion no. 2012-792, granted). As set forth in HPD’s motion and accompanying memorandum of law, HPD also conditions eligibility for succession tenancy on the listing of the applicant’s name on income affidavits. See Griffith Aff. ¶ 4. 27 vacated apartment available to a low-income family. And, as in Matter of Schorr, the Appellate Division did not have authority to prevent DHCR from fulfilling its statutory obligation to enforce its own eligibility criteria.6 POINT II SUBSTANTIAL EVIDENCE SUPPORTS DHCR’S REJECTION OF MURPHY’S EXCUSE Even assuming that the Appellate Division’s “excuse” exception to the income-affidavit requirement had some legitimate basis (and it does not), the lower court erred in crediting Murphy’s proffered excuse here. DHCR considered and expressly rejected as a factual matter Murphy’s explanation that his mother declined to file income affidavits for 1998 and 1999 due to concerns about corruption on the Southbridge Towers board (R. 56). That factual 6 The lower court’s creation of a new judicial exception for Murphy is particularly unjustifiable here because DHCR already permits limited waivers of its regulations based on “undue hardship.” See 9 N.Y.C.R.R. § 1725-2.9; see also id. § 1700.5 (current). Murphy has never attempted to invoke this existing exception to excuse his failure to comply with the income-affidavit requirement, and he should not be permitted to do so now at this late stage. 28 determination must be upheld so long as it is supported by substantial evidence in the record—meaning any rational basis to support DHCR’s decision, even “where the evidence is conflicting and room for choice exists.” Matter of State Div. of Human Rights (Granelle), 70 N.Y.2d 100, 106 (1987). Here, the administrative record more than adequately supports DHCR’s rejection of Murphy’s excuse. The unsworn 2007 statement by Murphy’s mother asserted that Ms. Murphy did not submit income affidavits for 1998 and 1999 because a Southbridge Towers board member, Jody Wolfson, had been indicted on embezzlement charges (A.R. 263). But Ms. Wolfson did not run for the board until 2002 and was not arrested until 2005. See supra at 14-15. Moreover, Ms. Wolfson’s crimes had nothing to do with the misappropriation or misuse of other tenants’ financial information—instead, she was charged with conspiring to transfer her own Mitchell-Lama apartment, in violation of DHCR’s succession regulations, by falsifying income affidavits. See United States v. Wolfson, No. 06-cr-313 (S.D.N.Y.), Dkt. No. 10: Information ¶¶ 7, 10. 29 Ms. Murphy’s actions during the relevant time period also cast doubt on the factual accuracy of her explanation. One might expect, if she had genuine concerns about the security of her financial information, that she would have made some attempt to safeguard the income affidavits that she had already filed for the years 1990-1997. But Ms. Murphy has identified no actions taken by her to address her alleged concerns. Likewise, one might expect that Ms. Murphy would have notified an official at the housing company, DHCR, or some law enforcement agency. But again there is no evidence that she did anything. Indeed, Ms. Murphy apparently did not even warn her own son: notwithstanding Ms. Murphy’s asserted concerns about corruption on the Southbridge Towers board, Paul Murphy divulged his own financial information to Southbridge Towers in income affidavits filed from 2001 through the date of Jody Wolfson’s arrest in December 2005 (A.R. 80-86). Given these inconsistencies, DHCR had a sound basis in reason for disbelieving Ms. Murphy’s assertion that her concerns about Ms. Wolfson led to her decision not to file income affidavits 30 for 1998 and 1999. Because petitioner Paul Murphy thus provided no valid excuse for the absence of his name on the required income affidavits, his article 78 petition should have been denied even under the Appellate Division’s judicially created exception to DHCR’s succession regulations. 31 CONCLUSION For the reasons stated above, this Court should reverse the judgment of the Appellate Division, First Department. Dated: New York, New York November 30, 2012 Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Respondent- Appellant By:____________________________ Brian A. Sutherland Assistant Solicitor General Office of the Attorney General 120 Broadway, 25th Floor New York, NY 10271 (212) 416-8096 BARBARA D. UNDERWOOD Solicitor General STEVEN C. WU Special Counsel to the Solicitor General BRIAN A. SUTHERLAND Assistant Solicitor General of Counsel Reproduced on Recycled Paper