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. REPLY 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: February 15, 2013 TABLE OF CONTENTS Page TABLE OF AUTHORITIES..............................................................ii PRELIMINARY STATEMENT ........................................................ 1 ARGUMENT .................................................................................... 5 POINT I - MURPHY DOES NOT QUALIFY FOR SUCCESSION............................................................ 5 POINT II - SUBSTANTIAL EVIDENCE SUPPORTS DHCR’S RATIONAL DETERMINATION TO REJECT MURPHY’S EXCUSE .............................. 13 CONCLUSION ................................................................................ 18 ii TABLE OF AUTHORITIES Cases Page(s) Matter of Cintron v. Calogero, 15 N.Y.3d 347 (2010)............................................................................ 11 Matter of Dworman v. DHCR, 94 N.Y.2d 359 (1999)............................................................................ 11 Matter of Featherstone v. Franco, 95 N.Y.2d 550 (2000)............................................................................ 15 Matter of Girigorie v. New York City Department of Housing Preservation & Development, 75 A.D.3d 430 (1st Dep’t 2010).......................................................... 6, 7 Matter of Grimm v. DHCR, 15 N.Y.3d 358 (2010)............................................................................ 11 Matter of Perez v. Rhea, No. 26, 2013 N.Y. Slip Op. 00953 (Feb. 14, 2013) .......................... 9, 12 Matter of Schorr v. New York City Department of Housing Preservation & Development, 10 N.Y.3d 776 (2008)........................................................................ 2, 11 Matter of State Div. of Human Rights (Granelle), 70 N.Y.2d 100 (1987) ............................................................................................. 14 Matter of Versailles Realty Co. v. DHCR, 76 N.Y.2d 325 (1990).............................................................................. 9 Laws Private Housing Finance Law § 11............................................................ 8 9 N.Y.C.R.R. § 1727-8.2 ............................................................................................... 5 § 1727-8.3 ............................................................................................... 5 PRELIMINARY STATEMENT For decades, regulations promulgated by the New York State Division of Housing and Community Renewal (DHCR) have unambiguously limited succession to applicants who were listed on income affidavits filed during the two years before the previous tenant vacated the apartment. Without contesting the validity of these regulations, Paul Murphy contends here that DHCR is compelled to ignore this clear rule whenever a tenant fails to file an income affidavit and the applicant offers an excuse for the tenant’s failure to file. But the courts lack authority to create exceptions to valid agency regulations. Moreover, Murphy’s “excuse” exception unfairly privileges succession applicants over low-income persons on long waiting lists and undermines DHCR’s administration of over 100,000 Mitchell-Lama units. Contrary to Murphy’s arguments here, the central purpose of the Mitchell-Lama program is not to guarantee succession, but rather to provide subsidized housing to low-income families. The timely filing of accurate income affidavits is essential to that purpose. And a range of serious consequences—including 2 eviction—may be applied against those tenants who fail to comply with this requirement, even if they are otherwise eligible for Mitchell-Lama housing. By seeking to insulate the succession process alone from the consequences of failing to file income affidavits, Murphy in essence seeks special protections for succession applicants. But nothing in the language of the regulations or the purpose of the program supports such a privilege. Murphy also relies on the claimed equities of his own case— in particular, his asserted long-term occupancy in his mother’s taxpayer-subsidized apartment—to argue that DHCR was required to ignore its unambiguous regulations in his case. But this Court squarely rejected an effort to establish such an equitable exception in Matter of Schorr v. New York City Department of Housing Preservation & Development, 10 N.Y.3d 776 (2008), holding that housing agencies such as DHCR are not only permitted but obligated to comply with their statutory and regulatory mandates. That principle ensures that the allocation of subsidized housing follows clear rules that apply equally not only 3 to existing tenants, but also to the thousands of eligible families on the waiting lists. Finally, even if there were some basis for the “excuse” exception that Murphy argues for here, Murphy has not offered a “compelling” reason (Br. at 18) for the former tenant’s failure to file required income affidavits. DHCR specifically rejected the excuse that Murphy offered in the administrative proceeding. In his response brief to this Court, Murphy improperly raises new factual assertions that were not presented to the agency until after it had issued its decision. But even if this Court could consider those assertions, they would serve only to confirm the reasonableness of DHCR’s determination. The post-decision affidavit by Murphy’s mother merely provides unsubstantiated rumors about a DHCR employee’s alleged misconduct, while repeating numerous false and inconsistent statements that she made in a prior submission. And this affidavit does not rebut DHCR’s reasonable finding that no contemporaneous evidence showed that concerns about this employee caused Murphy’s mother to decide not to file the required income affidavits. 4 Because substantial evidence thus supports DHCR’s rejection of Murphy’s proffered excuse, the denial of succession must be upheld even under Murphy’s unsupported and unjustifiable “excuse” exception. The Appellate Division’s ruling in this case has already engendered considerable uncertainty concerning DHCR’s income- affidavit requirements and has more broadly threatened the authority of agencies to enforce their valid regulations. This Court should reverse the Appellate Division and hold that where, as here, an applicant for succession does not meet DHCR’s succession criteria, DHCR may deny the application. 5 ARGUMENT POINT I MURPHY DOES NOT QUALIFY FOR SUCCESSION DHCR’s regulations unambiguously require that a succession applicant’s name be “listed on the income affidavit” for the relevant years. 9 N.Y.C.R.R. § 1727-8.3(a); see also id. § 1727- 8.2(5) (“Proof of [primary residency] shall be the listing of [the applicant] on the annual income affidavit . . . .”).1 Murphy concedes that, under this language, succession must be denied if a filed income affidavit omits the applicant’s name. See Murphy Br. at 20-21. But he asserts that “[t]he regulations do not address the unique circumstance where no income affidavit was filed.” Id. at 19 (emphasis added). That argument makes no sense. A succession applicant cannot meet the requirement that his name be listed on several years’ income affidavits if no such affidavits were filed—any more than he could if affidavits were filed without his name. Murphy’s 1 These regulations are appended to DHCR’s opening brief. See Addendum at 10. 6 purported distinction would put those families who partially comply with the regulations (by filing an incomplete income affidavit) in a worse position than those who fail entirely (by filing no affidavit at all). Nothing in the regulations, agency practice, or precedent supports this result. Thus, DHCR, like other housing agencies, denies succession applications where the tenant did not file income affidavits in the first instance,2 and the Appellate Division has confirmed that such failure to file precludes eligibility for succession tenancy. In Matter of Girigorie v. New York City Department of Housing Preservation & Development, the First Department affirmed the denial of a succession claim because, inter alia, the applicant’s mother “never filed an affidavit for 2005.” 75 A.D.3d 430, 431 (1st 2 See Affirm. of Karen M. Griffin in Support of Mot. for Leave to Participate as Amicus Curiae in Support of Mot. for Leave to Appeal ¶¶ 10-11 (July 12, 2012) (motion no. 2012-792, granted) (stating that the New York City Department of Housing Preservation and Development amended its regulations in 2003 for the specific purposes of promoting compliance with its income affidavit requirement and establishing a bright-line eligibility condition for succession to tenancy in HPD-supervised Mitchell- Lama housing. See also Mem. of the City of N.Y. as Amicus Curiae in Support of Mot. for Leave to Appeal 11 (July 12, 2012) (same). 7 Dep’t 2010). Murphy argues that the court there also “considered other evidence of co-occupancy” (Br. at 24), but he is incorrect. The court held that remand to consider evidence of residency “would be futile,” 75 A.D.3d at 431, because the applicant had failed to comply with two bright-line rules—the requirement that he be listed on income affidavits, and a requirement concerning New York City tax returns. Failure to comply with either of those requirements barred succession, regardless of whether the applicant could produce other evidence of residency. See id. at 431. In view of the plain language of the regulations and the absence of case law in support of his position, Murphy cannot seriously contend here that he has complied with the regulations—indeed, he admits that he has not. Murphy Br. at 32. Instead, he makes two arguments to support his position that DHCR was required to ignore its unambiguous regulations. Neither argument has merit. First, Murphy asserts that DHCR must ignore its independent income-affidavit requirement here because the “purpose of the Mitchell-Lama statute” is to guarantee succession 8 of taxpayer-subsidized housing to long-term occupants. Br. at 27. But that position misstates the policy underlying the Mitchell- Lama program and undermines DHCR’s administration of over 100,000 Mitchell-Lama units. Mitchell-Lama is not a succession program; indeed, the Mitchell-Lama laws do not even mention, much less mandate, succession. Instead, the purpose of the Mitchell-Lama program is to address the acute housing shortage for “families and persons of low income.” PHFL § 11. And in service of that core purpose the annually filed income affidavit performs a crucial role: it is the key document that permits DHCR to ensure that taxpayer-subsidized apartments are limited to the low-income families that have the greatest need for public support. See DHCR Opening Br. at 5-7. As Murphy acknowledges (Br. at 25), the paramount importance of income affidavits justifies the “stringent penalties” that DHCR is authorized to apply when a tenant fails to file an affidavit— including eviction of a noncompliant tenant. Murphy provides no compelling reason that the succession process should be uniquely exempt from the consequences that 9 normally attach to a tenant’s failure to file income affidavits. His sole argument is that the denial of succession is superfluous as only “one of several ‘incentives’ to insure that such affidavits are filed.” Murphy Br. at 25. But DHCR reasonably determined that denying succession to applicants like Murphy reinforces the importance of timely filing of annual income affidavits and promotes adherence to this requirement. As this Court recently observed, deterring income-reporting violations serves “a vital public interest” in ensuring that the limited stock of taxpayer- subsidized housing is properly allocated—an interest so important that it may be enforced even by eviction. Matter of Perez v. Rhea, No. 26, slip op. at 7, 2013 N.Y. Slip Op. 00953, at *4 (Feb. 14, 2013). Murphy has not established that DHCR’s regulations denying succession in support of the same vital public interest are “so lacking in reason for [their] promulgation that [they are] essentially arbitrary,” Matter of Versailles Realty Co. v. DHCR, 76 N.Y.2d 325, 328 (1990) (quotation marks omitted). Murphy would limit his proposed judicial exception to DHCR’s succession regulations to those cases in which a tenant offers an 10 excuse for failing to file required income affidavits. But this “excuse” rule only makes matters worse by forcing DHCR to divert its already limited resources to investigating and possibly litigating any of a broad range of excuses that applicants might make. Murphy claims that such investigations would add only negligible additional burdens to an already “fact-laden inquiry” (Br. at 23), but he offers no support for this implausible assertion. Requiring DHCR to accept succession applications from persons who were not listed on income affidavits would greatly expand the number of applications that housing companies receive. Moreover, the former tenant may not be alive or available to supply the excuse, in which case DHCR would be forced to examine the applicant’s second-hand explanation. And finally, the undefined and uncabined nature of this “excuse” rule may require DHCR to investigate circumstances that go well beyond the residency of succession applicants to determine whether the excuse has any merit. Second, Murphy essentially argues for an equitable exception from DHCR’s succession regulations due to “the specific and 11 unique facts of this case.” Murphy Br. at 1. But this Court squarely held in Matter of Schorr that a court may not create equitable exceptions to the Mitchell-Lama program’s “strict guidelines for tenant eligibility and succession.” 10 N.Y.3d at 778. None of the cases cited by Murphy undermine Schorr’s central holding. Instead, each of those cases identified an existing source of law—not merely undefined concerns about equity—to guide DHCR’s decisions. In Matter of Dworman v. DHCR, this Court held that the Rent Regulation Reform Act did not bar DHCR’s consideration of a tenant’s late-filed submission, and DHCR’s own rent-stabilization regulations required it to accept the submission upon a showing of good cause. 94 N.Y.2d 359 (1999). In Matter of Grimm v. DHCR, this Court held that common law contract principles required DHCR to ascertain whether a tenant’s “base rent” was void because of fraud. 15 N.Y.3d 358, 366 (2010). And in Matter of Cintron v. Calogero, this Court harmonized two apparently conflicting statutes to determine the effect of DHCR’s rent reduction orders on subsequent overcharge complaints. 15 N.Y.3d 347, 355 (2010). 12 Here, by contrast, Murphy has identified no competing source of law that counters DHCR’s succession regulations. Instead, Murphy insists only that the claimed equities of his case— including his asserted long-term occupancy of the apartment— compel DHCR to ignore the plain meaning of its regulations. Schorr forecloses any such argument. In any event, Murphy makes no showing that denying succession in his case would result in “harsh consequences.” Murphy Br. at 2, 13; see Matter of Perez, slip op. at 5-6 (reversing Appellate Division and noting that petitioner failed to substantiate her claim that eviction would result in homelessness). Paul Murphy has enjoyed taxpayer-subsidized housing for years while he has pressed his succession claim before the agency and courts. If this privileged status were to come to an end, he would still be better off than the thousands of persons on waiting lists who deserve this valuable benefit but, unlike Murphy, have never received it. Moreover, the record indicates that Paul Murphy is relatively young (born in 1981 (A.R. 235)), 13 with access both to significant wealth of his own,3 and to the support of his six-figure-earning parents (A.R. 287, 496 (1998), 350, 513 (1999)) who moved just across the East River to the same Brooklyn Heights neighborhood where he attended a private high school (A.R. 8, 393). Even if courts could override unambiguous regulatory mandates to avoid “harsh consequences”—and Schorr rejected just such a claim—this case would not be an appropriate one in which to exercise such an extraordinary power. POINT II SUBSTANTIAL EVIDENCE SUPPORTS DHCR’S RATIONAL DETERMINATION TO REJECT MURPHY’S EXCUSE Even if the Appellate Division’s “excuse” exception existed (and it does not), DHCR’s determination to deny Murphy’s succession application would be proper because the agency reasonably rejected the proffered excuse for failing to file the required affidavits (R. 56). Contrary to Murphy’s suggestion here, 3 For example, Murphy’s tax documents reflect that he sold $20,000 in stock in 1998 (A.R. 118), and $63,252 in stock in 2001 (A.R. 127). 14 the test is not whether “substantial evidence . . . support[s] Ms. Murphy’s reasonable belief that her personal financial information would be misused by Jody Wolfson.” Murphy Br. at 35 (emphasis added). Rather, the only question is whether DHCR had a rational basis for its factual determination. See Matter of State Div. of Human Rights (Granelle), 70 N.Y.2d 100, 106 (1987). Murphy can- not show that DHCR lacked a rational basis for its decision here. As DHCR showed in its opening brief, Ms. Murphy’s proffered reason for refusing to file the required income affidavits rested on numerous false and inconsistent statements of fact. See DHCR Opening Br. at 14-15, 28-29. Rather than rebutting these points in his opposition brief, Murphy relies on materials that he submitted for the first time in connection with a “request for reconsideration” after DHCR issued its decision in this case. See Murphy Br. at 7-9 (describing post-decision documents and noting that Murphy filed his article 78 petition before DHCR could act on his request for reconsideration). Because these materials were not part of the administrative record before DHCR issued its decision, 15 they may not be considered now. See Matter of Featherstone v. Franco, 95 N.Y.2d 550, 554 (2000). In any event, these materials serve only to confirm the rational basis for DHCR’s determination. Ms. Murphy asserted in December 2009—after DHCR’s final determination—that she deliberately declined to submit income affidavits for 1998 and 1999 because she feared that Ms. Wolfson would obtain and circulate her “confidential financial information” and “tell[] people how much money [Ms. Murphy] made” (R. 82 [¶¶ 7-8]; see also Murphy Br. at 33-35). But there is no reliable evidence to support this accusation. Ms. Murphy’s affidavit relies solely on an unverified rumor from an unidentified friend (R. 82 [¶ 7]). And although Wolfson was later charged with falsifying her own and her mother’s income affidavits to circumvent DHCR’s succession regulations,4 Wolfson was never accused of misappropriating or 4 See United States v. Wolfson, No. 06-cr-313 (S.D.N.Y.) (dkt. no. 10: information ¶¶ 4, 7, 10, 19). 16 improperly reviewing other tenants’ financial information, including Ms. Murphy’s.5 In addition, as DHCR expressly found, there was no contemporaneous evidence showing that Ms. Murphy had any of these concerns about Wolfson at the time that she decided not to file the required income affidavits (R. 56). She never reported Wolfson’s alleged malfeasance to anybody before unilaterally deciding to break DHCR’s rules. See DHCR Opening Br. at 29. Indeed, she did not even explain her concerns when Paul Murphy first submitted his succession application. To the contrary, the initial application falsely claimed that the required income affidavits had been filed and blamed Southbridge Towers for losing them (A.R. 4)—misrepresentations that Paul Murphy did not correct until months later (A.R. 249). Given these inconsistencies, unverified assertions, and outright falsities, DHCR reasonably found “unavailing” Ms. 5 Ms. Murphy also asserted that Wolfson “still works for the DHCR” (R. 82 [¶ 9]), but that was also false—after having been suspended without pay, Wolfson resigned from DHCR on March 15, 2007 (see R. 149 (resignation letter)). 17 Murphy’s purported excuse for not filing income affidavits (R. 56). Thus, even under Murphy’s position here, the absence of a “compelling reason for not filing” (Br. at 19) supports the denial of his succession application. 18 CONCLUSION This Court should reverse the judgment of the Appellate Division, First Department. Dated: New York, New York February 15, 2013 Respectfully submitted, ERIC T. SCHNEIDERMAN Attorney General of the State of New York Attorney for Respondent- Appellant By:. /s/ Brian A. Sutherland . 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