In the Matter of Kelley S. Boyd, Respondent,v.New York State Division of Housing and Community Renewal, et al., Appellants.BriefN.Y.June 24, 2014Andrew M. Cuomo Governor Darryl C. Towns Commissioner New York State Division of Housing and Community Renewal 25 Beaver Street New York, NY 10004 April 17,2014 Via Overnight Mail Court of Appeals State of New York 20 Eagle Street Albany, New York 12207 Attn: Andrew W. Klein, Clerk of the Court Re: Matter of Boyd v. NYS DHCR APL-2014-0052 App. Div. Dkt. No. 10122 Index No. 110437/2011 Appellant NYS DHCR's Letter Submission pursuant to Rule 500.11 Dear Mr. Klein: By order dated March 6, 2014, the Appellate Division, First Department, certified to this Court the question: "Was the order of [the Appellate Division], which reversed and vacated the judgment of the Supreme Court, properly made?" Appellant New York State Division ofHousing and Community Renewal ("DHCR") submits this letter pursuant to the Court of Appeals' direction that this appeal proceed pursuant to Rule 500.11. Preliminary Statement This is an appeal from an order of the Appellate Division, First Department entered October 29,2013. The order reversed the judgment of the Supreme Court, New York County (Honorable Barbara Jaffe) which denied the CPLR Article 78 petition and dismissed the proceeding to annul a determination by DHCR denying Kelly S. Boyd's ("Respondent") rent overcharge complaint under the Rent 1 Stabilization Law (RSL) (RSL §26-516[a][2] and Rent Stabilization Code (RSC) (9 NYCRR 2520.6[e]and[t][i]; 9 NYCRR 2526.1 [a][3][1]) By this appeal DHCR asks this Court to review the application of this Court's holding in Grimm v. DHCR, 15 N.Y.3d 358, 912 N.Y.S.2d 491 (2010) which permitted DHCR to look back more than the statutory four-year limitations period for rent overcharge complaints where there is "evidence of a landlord's fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization." Id. At 367. In the court below, a divided bench (3-2) found that Respondent's claim in her letter submission to DHCR that "based on its condition when she moved in, the Owner could not have spent $39,000.00 for improvements to the building" to justify a rent increase, (Boyd v. DHCR, 110 A.D.3d 594, 973 N.Y.S2d 609 (1st Dept. 2013), was sufficient to mandate that DHCR look back more than four years to determine her rent overcharge claim. This was so, despite the dissent's reiteration of this Court's view that "[a] conclusory claim, without more, is insufficient for the agency to disregard the four- year look back period established under the Rent Stabilization Law .. .." 110 A.D.3d at 598. DHCR contends that the dissenting Judges in the court below correctly interpreted this Court's holding in Grimm and that DHCR, as a matter of law, did not act irrationally or in an arbitrary or capricious manner when it issued its order. DHCR respectfully requests a reversal of the Appellate Division's order. SUMMARY OF THE ADMINISTRATIVE PROCEEDINGS UPON WHICH DHCR ISSUED ITS DETERMINATION Respondent Boyd filed a complaint of a rent overcharge with DHCR on April 7, 2009. The Respondent stated that she had moved into her rent stabilized apartment, on Cabrini Boulevard in Manhattan, over two years earlier, on March 1, 2007, pursuant to a one-year lease at a rent of $2000 per month. (See Original Administrative Record ["R" at A-I]) Respondent submitted with her complaint a copy of the rent registration information that she had obtained from DHCR's records. The registration information confirmed that the subject apartment had been registered with DHCR as vacant in the annual apartment registration filed for 2004, with the prior legal regulated rent set forth as $571.70 per month. Further, the 2005 registration showed a legal regulated rent of $1750 pursuant to a one-year vacancy lease. Apparently, the tenant in 2004 had died resulting in anew, subsequent tenancy 2 with an increase in rent due to the vacancy and alleged individual apartment improvements {lAI's). In a letter attached to her complaint, Respondent claimed that any improvements done to her apartment could not justify the hike in rent that appeared in the 2005 registration. She stated that she thought any improvements which were made in her apartment in 2004 could only be valued at $5000, and not the $39,000 worth of improvements which she stated would have been necessary under the Rent Stabilization Law to raise the rent to the $1750 level. She claimed, for instance, that "for the most part" the apartment had original fixtures, floors and doors. She claimed that her kitchen had "slat floors" and not hardwood floors as exist in the rest of the apartment, that her kitchen had been updated with low quality appliances and that her kitchen had very inexpensive "Home Depot Cabinets" and 48" of counter space. She also claimed that her kitchen sink appeared to be recycled or used. She stated that her apartment had original fixtures, hardwood floors and doors and claimed that the four-year period of rent review should be waived based upon the Owner raising the rent in 2004 from $571 per month to $1750 per month pursuant to a vacancy lease and that other apartments should be investigated as well. The Respondent noted throughout the administrative proceeding that the Owner represented to her that the subject apartment was rent stabilized at the time the apartment was rented; that she received a rent stabilized lease rider with her lease; and that the annual registration for the apartment for 2007, the year she moved in, showed that the apartment was subject to rent stabilization. (See ~.g. R. A-8) The Owner, in response to the complaint, submitted a full lease history for the subject apartment for the applicable four-year period with respect to the tenants who predated Respondent's occupancy as well as computer printouts from the Owner's records showing the rent actually paid every month by the prior tenants for that period. On March 12, 2010, DHCR's Rent Administrator issued an order denying the rent overcharge complaint. (R. A-I 0) The Rent Administrator, based on an assertion by Owner's Counsel, first found the apartment also to be deregulated. However, the Rent Administrator corrected the order on October 4, 2010 after both parties acknowledged DHCR's jurisdiction. This order again dismissed the rent overcharge complaint but found the apartment to be rent stabilized. (R: B-9) 3 The Respondent challenged the Rent Administrator's order by filing a Petition for Administrative Review, or "PAR." The Respondent asserted in the PAR that the rent increase outside the four-year examination period, from $571 per month to $1750 per month, was based upon fraudulently claimed individual apartment improvements. She further claimed that the Owner had failed to treat the apartment as stabilized, failed to offer her a renewal lease and failed to properly register the apartment. Accordingly, DHCR's "default formula" should have been used to calculate the legal regulated rent for the subject apartment without any allowance for increases, citing Grimm. (R. C-I) In response (R. C-7), the Owner stated that there were no indicia of fraud or evidence that the Owner intended to circumvent the RSL and RSC as there was in the Grimm. The mere rise in rent that took place between 2004 and 2005 after the long-term tenancy of a prior tenant was insufficient to constitute evidence of fraud and that the subject apartment had been renovated. . The Owner also submitted a copy of the original 1972 vacancy lease of the long-term tenant who was said to have passed away in 2004, and the vacancy lease of the subsequent tenant with an attached rent stabilized lease rider showing how the new vacancy lease rent was derived. Although occurring before the base date, the lease rider set forth that the Owner had taken a vacancy allowance increase of 17%, a rent guidelines increase, and an increase of $975.35 for new equipment and apartment improvements to reach the new rent. The Owner also submitted a copy of a letter from the tenant who had taken occupancy prior to Respondent, but after the tenant who had occupied the apartment in 2004 died, advising the Owner that she was vacating the apartment in October of 2004. The Owner also resubmitted a copy of the vacancy lease for that tenant along with the rent stabilized lease rider for that lease. (R. C-7) In reply, Respondent claimed, again, that from her observation of the apartment, no extensive renovations were performed to justify as large a rental increase as was taken. (R. C-II) The PAR Order On July 19, 2011 DHCR issued a final determination, its "Order and Opinion Denying Petition for Administrative Review" ("the PAR order," see R. C- 19). DHCR found no basis for setting aside the statutory four-year limitations period with respect to the examination of rent history and found that the criteria in Grimm for doing so had not been met. 4 Unlike Grimm, the PAR order found that there were insufficient indicia pointing to violations of the RSL or the RSC, a fraudulent deregulation scheme or a variance in the registration history from the lease history, to establish a colorable claim of fraud. The PAR order addressed the major claim with respect to IAls, i.e, that the costs were inflated, as well as what Respondent had claimed were the surrounding circumstances which made a review of these IAI claims appropriate, even though more than four years had passed. The significant variance according to the Respondent was that the Owner in its lease rider had indicated a prior registered rent of$I,750.00 per month, when it had registered the rent as "0" due to a vacancy. The lease rider submitted by the Owner set forth the $1750.00 rent figure, which had in fact been the last legal regulated rent of the previous tenant. The apartment was registered as being vacant on April 1,2004 (the operative date for registration) which was also true. DHCR noted that its current lease rider form actually required an Owner to list the last rent, which the Owner in fact did. Based on the foregoing, the PAR order correctly found that this variation did not require "putting the owner to its proof as to the costs of the IAI's [individual apartment improvements]" especially since it would not be difficult to believe that it could have taken $39,000 in improvements to update an apartment that had previously not changed hands in thirty-two years. Article 78 Proceeding and Supreme Court's Decision and Judgment By decision and judgment dated May 11,2012 the Supreme Court (the Honorable Barbara Jaffe) denied the petition and dismissed the Article 78 proceeding. The lower court found that DHCR was not arbitrary and capricious in finding insufficient indicia of fraud to warrant examination of the rental history for the tenant's apartment beyond the four- year limitation period set forth in the RSL and RSC. The Appellate Division Decision and Order On appeal, the Appellate Division by decision and order dated October 29, 2013, reversed the Supreme Court judgment, and remanded the proceeding to DHCR. The Appellate Division found, in a 3-2 ruling, that the tenant's letter attached to the overcharge complaint alleging that the Owner could not have spent $39,000 for improvements based on what she claimed she observed, set forth a 5 sufficient showing of fraud to require DHCR to investigate the legality of the base rent under the standard set forth by the Court of Appeals in Grimm. The Appellate Division further found that DHCR treated the owner and tenant claims disparately, thus making the determination arbitrary and capricious. This disparate treatment was reflected in the PAR order's statement that it would not be difficult to envision $39,000 in individual apartment improvements to update the appearance and equipment in an apartment which had not changed hands for thirty-two years, while not attempting to evaluate the legitimacy of the tenant's claims to the opposite effect. The dissenting opinion observed that the tenant had not presented evidence of a fraudulent increase in the legal registered rent for the subject apartment. There was no justification therefore for the examination of the apartment's rental history beyond the four-year period set forth in the Rent Stabilization Law, since only where there is a colorable claim of fraud may the rental history outside the four year period be examined. The dissent further observed that the Court of Appeals had held in Grimm that a sizeable increase in rent prior to the statutory period does not, alone, support a colorable claim of fraud. The dissent found it significant, unlike the facts in Grimm, that the Owner in this case complied with all of the registration requirements. The dissent also noted the information upon which the Respondent's overcharge claim was based was known to her at the time that she moved into the apartment in 2007, yet she waited two years to challenge the rent. The Respondent was within the ordinary four-year period of review when she moved into the apartment without having to show a "fraudulent predicate." The dissent further stated that the Respondent's subjective belief and conclusory claim that the apartment improvements could not have cost more than $5000 does not satisfy her initial burden of showing that the fraud exception should be applied. Therefore, the dissent concluded DHCR's refusal to pierce the statutory period of review was rationally based on the record and was not arbitrary and capricious or affected by an error of law. The dissent finally observed that the majority's holding that Respondent's letter, attached to the complaint, triggers an inquiry into the legitimacy of the base rent, would eviscerate the statutory rule since an inquiry beyond four years would be required whenever a tenant alleges fraud, even without any particularity, and thus went far beyond the holding of Grimm. 6 ARGUMENT DHCR's determination that it was required to employ the statutory four-year limitation in examining the rent history when determining the Respondent's rent overcharge complaint, rather than the "fraud" exception, had a rational basis, was not arbitrary and capricious and was in conformance with the previous decision of the Court of Appeals in Grimm. Standard of Review The only questions that may be raised in an Article 78 proceeding to challenge action or inaction by a state or government agency are whether a determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion CPLR 7801, 7803[3] . The determination of an administrative agency like DHCR, "acting pursuant to its authority and within the orbit of its expertise, is entitled to deference, and even if different conclusions could be reached as a result of conflicting evidence, a court may not substitute its judgment for that of the agency when the agency's determination is supported by the record." Matter of Partnership 92 LP & Bldg. Mgt. Co., Inc. v DHCR, 46 A.D.3d 425, 429, 849 N.Y.S.2d 43 (1 st Dept. 2007), affd 11 N.Y.3d 859, 873 N.Y.S.2d 247 (2008). In reviewing an administrative agency's determination as to whether it is arbitrary and capricious, the test is whether the determination "is without sound basis in reason and in general taken without regard to the facts." Matter ofPell v. Bd. ofEduc. of Union Free School Dist. No.1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 N.Y.2d 222, 231, 356 N.Y.S.2d 833 (1974). It is for DHCR to make conclusions based on its assessments of the facts and the inferences that can be drawn from them. Terrace Ct. LLC v. DHCR, 18 N.Y.3d 446,940 N.Y.S.2d 549 (2012) The failure ofa party with the burden of proof and persuasion to provide DHCR with information does not make DHCR's determination when such evidence is not provided, either arbitrary or capricious. Howard-Carol Gardens Tenants Association v. CAB, 48 N.Y.2d 768,423 N.Y.S.2d 911 (1979) The Statutory Period The Rent Regulation Reform Act of 1997 ("the RRRA", L. 1997, Ch. 116, §33) expressly precluded courts and DHCR from examining rent records more than four years prior to the filing of a rent overcharge complaint. In particular, 7 RSL §26-5 16a (2)(iii) provides that "this paragraph shall preclude examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint pursuant to this subdivision." Id. It further provides that: ... a complaint under this subdivision shall be filed with the state division of housing and community renewal within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of an overcharge may be based upon an overcharge having occurred more than four years before the complaint is filed.... Id. Therefore, as a general rule, DHCR cannot base a finding of rent overcharge upon rent history or a rent registration pertaining to a period more than four years prior to the filing date of the complaint. Hawco v. DHCR, 218 A.D.2d 294, 722 N.Y.S.2d 150 (1sl Dep't., 2001). This four-year limitation bars consideration of prior rent registrations or rent history even if it revealed an unexplained, and seemingly unwarranted, spike in rent. Anderson v. Lynch, 292 A.D.2d 603, 739 N.Y.S.2d 622 (2nd Dept. 2002). DHCR's procedures for overcharge review within the four year period The Rent Stabilization Law allows owners to obtain rent increases for improvements made to an apartment on vacancy without securing prior approval or a determination from DHCR or obtaining the consent of the subsequent tenant. RSL §26-511(c)( 13) Instead, an owner is required to maintain and produce records justifying the legality of the rent upon demand from DHCR, usually after a tenant complaint is made, without the need for any predicate showing. RSL §26-516(g) RSC §2523.7(b) It is the owner's burden to prove in any such administrative proceeding that each claimed improvement was actually made and that the improvement is not an ordinary repair. Charles Birdoff& Co. v. DHCR, 204 A.D.2d 630, 612 N.Y.S.2d 418 (2nd Dept. 1994); 985 Fifth Avenue Inc. v. DHCR, 171 A.D.2d 572, 567 N.Y.S.2d 657 (1st Dept. 1991) This fact intensive analysis is not resolved by inflexible rules but is based on the submission ofpersuasive evidence with the burden on the owner to show the propriety of the increase. Jemrock v. Krugman, 13 N.Y.3d 924, 895 N.Y.S.2d 284 (2010). It is the owner's 8 additional burden to establish that any such overcharge where costs or work are disallowed was not willful in order to escape treble damages. Graham Court Owners Corp. v. DHCR, 71 A.D.3d 515, 899 N.Y.S.2d 7 (lSI Dept. 2010); RSL §26-516(a) The Grimm Exception In Grimm, this Court clarified an exception to the statutory period of review where there is a fraudulent scheme to deregulate an apartment. First, there must be substantial indicia of fraud. As this Court noted, DHCR has an obligation to ascertain whether the rent on the base date was a lawful rent and ... DHCR acted arbitrarily and capriciously in failing to meet that obligation where there existed substantial indicia offraud on the record. [emphasis added]. Id. at 366 Further, such inquiry requires DHCR to review its own records in addition to the submission by the tenant to determine whether that substantial indicia exists. Our holding should not be construed as concluding that fraud exists, or that the default formula should be used in this case. Rather, we merely conclude that DHCR acted arbitrarily in disregarding the nature of petitioner's allegations and in using a base date without, at a minimum, examining its own records to ascertain the reliability and the legality of the rent charged on that date. Id. at 366-367 More fundamentally, the allegation of "fraud" by itself is not sufficient to trigger an inquiry. There needs to be evidence of a fraudulent scheme to deregulate the apartment and not merely an increase in rent. Generally, an increase in the rent alone will not be sufficient to establish a "colorable claim of fraud," and a mere allegation of fraud alone, without more, will not be sufficient to require DHCR to inquire further. What is required is evidence of a landlord's 9 fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization. Id. at 367. The Appellate Division Order and Decision The Appellate Division majority's analysis in this case does not comport with the Grimm standard. The Appellate Division did not link the purported evidence presented by the Respondent with a fraudulent scheme to deregulate the apartment. Rather, it applied a more generalized claim of "fraud." The only support for a finding of a fraudulent scheme recited by the Appellate Division is the tenant's description of the apartment as she claims to have seen it when she took occupancy in 2007 and based upon that, her assertion that the total value of renovations could not have exceeded $5000. As stated by the dissent, the Respondent's own subjective belief that the apartment improvements could not have exceeded $5000 in value does not satisfy the initial burden to disregard the four-year limitation and investigate the legitimacy of the base date rent. Her conclusory statements do not constitute evidence of anything, let alone evidence of a fraudulent scheme to deregulate the apartment. As also noted by the dissent, not only is there no real evidence to back up Respondent's conclusions, she does not even account for the possibility of labor costs. Thus, whether the letter adequately details her complaint or accurately records the conditions of the apartment improvements which she admits were made, is not evidence of their value. In fact, her claims as to what she thought the value of the apartment improvements would be irrelevant under the RSC to determine the amount of the increase since it is the actual cost "incurred" and not subjective value which determine the rent increase. See RSL §26-511(c)(l3) and RSC §2522.4(a)(4). Respondent's dispute as to the nature of the improvements and their value is simply a matter of enhancing a regular rent overcharge dispute by using the term "fraud." While equitable estoppel may bar an assertion of a statute of limitation where a party was induced by fraud or deception to refrain from filing a timely action, it does not apply where the underlying claim is the same act forming the basis of the underlying substantive cause of action. Transportation Worker Union of America Local 100 AFL-CIO v. Schwartz, 32 A.D.3d 710,828 N.Y.S.2d 53 (1st Dept. 2006). In other words, Respondent should not be permitted to avoid the four- year period for bringing her claim, merely because she calls the facts fraud. 10 This misapprehension of the claim led the Appellate Division to the conclusion that DHCR afforded disparate treatment to the parties. This case, however, is not a matter of weighing competing claims as to the legitimacy of the improvements. Such a review would skip the analysis of the threshold issue outlined by this Court in Grimm as to whether there was enough evidence of a colorable claim of fraud to deregulate the apartment, to require review with respect to the legitimacy of the base rent beyond four years. Further, the claim of disparate treatment does not credit DHCR's own expert view that it could have taken $39,000 in improvements to update the appearance and equipment in an apartment which had not changed hands for thirty-two years. DHCR did not disregard Respondent's claim of fraud, but in accordance with Grimm, the PAR Order examined the rent registration history (including registration history preceding the base date) as well as the leases submitted by the Owner some of which preceded the base date. With the paucity of evidence submitted by the tenant, and based on the nature of the claim, DHCR found there was no basis for examining the legitimacy of the base date rent. DHCR did take into consideration the claims of fraud expressed by the Respondent but rationally found that there did not exist substantial indicia of fraud in the record to look into the legitimacy of the base date rent. DHCR did not make the Owner submit proof of his improvements, nor should it have. The Appellate Division's decision states that "[t]he owner has never submitted any evidence rebutting [Respondent's] claim that the lArs were minimal and cost far less than claimed." 110 A.D.3d at 595 However, to make the Owner submit this proof as a method of ascertaining whether this proof needs to be submitted, is the same as stating there is no threshold standard at all. This dearth of threshold evidence needs to be contrasted with the indicia that triggered the more fulsome review in Grimm. There, the owner provided leases without stabilized riders, required tenants to perform their own repairs to get a "discount" in the rent, did not register the apartment with DHCR and subsequently tried to "amend" past registrations retroactively to indicate that it was covered by rent stabilization. The quantum of evidence in Grimm has been aptly described and subsequently applied in Pehrson v. DHCR, 34 Misc.3d 1220 (A), 946 N.Y.S.2d 68, (Sup. Ct. N.Y. Co. 2011) As the Court noted Pehrson, as in Grimm, there were independent violations of the Rent Stabilization Law and Code, a scheme to remove the apartment from rent stabilization, and significant variances between the rent registration history and the owner's actual leasing practices. 11 Anticipated Claims by Respondent It is anticipated that Respondent will raise a number of claims to support her position that there was a fraudulent scheme to deregulate her apartment. None, however, amount to such a scheme. Indeed, not a single one of these claims is cited or relied on by the Appellate Division's majority decision. For instance, Respondent, as already noted, alleged that there was a difference between the rent registration and the lease rider for the previous tenant. However, this issue, as also noted above, was more than adequately explained in the PAR. Respondent, in her Appellate Division reply brief also makes mention that there was a notation on a lease that a prior tenant was taking the apartment "as is," but taking an apartment "as is" is not indicative of fraud. Respondent has also attempted to point to variances between the maximum legal rent the Owner could have charged and what it did charge. These variances for the most part were below the maximum rent that could be charged. The sole rent "overcharge" resulted from the apparent use by the Owner of an incorrect year's rent guideline increase for a previous tenant which led the Owner to charge $1,811.25 on one of the renewal leases rather than $1,798.13. Respondent has also claimed fraud based on the assertion by Owner's Counsel in the administrative proceeding, five years after she leased the apartment (and subsequently withdrawn), that the apartment was deregulated because the rent exceeded the $2,000.00 deregulation threshold (RSL §26-504.2) This claim, as the tenant herself admits, was not made when she rented her apartment. The claim was only made for a brief period by Owner's Counsel during this administrative period itself and made prior to this Court's decision in Roberts v. Tishman-Speyer Props. LP, 13 N.Y.3d 270,890 N.Y.S.2d 388 (2009). In that sense, the claim was similar to almost every other owner in New York City who was then asserting that participation in the J-5 I tax program did not preclude deregulation. Owner's Counsel recanted his position as part of this proceeding when Roberts was issued. It would be ironic and grossly inappropriate to find the Owner's actual leasing practice, which conformed to the practice prior to the decision in Roberts, 12 to be evidence of a fraud. Failure to follow the Roberts holding, prior to the Roberts decision being issued, is not the basis of a finding of willful rent overcharge. See 72A Realty Associates v. Lucas, 101 A.D.3d 401, 955 N.Y.S.2d 19 (lSI Dept. 2012); Rosensweig v, 305 Riverside Corp., 2013 N.Y.Misc. Lexis 3697,2013 N.Y. Slip Op 31949(u) It is anticipated that all of these tangential matters will be raised in an effort to distract the Court from the starkly delineated issue articulated by the majority and dissent and certified by the Appellate Division for this Court's review. The real concern is that the Appellate Division seems to be veering toward a rule that disputes over individual apartment improvements, by itself, warrant treatment as a fraud if predating the statutory period of review. See Rogatin v. Windmere Owners LLC, 98 A.D.2d 896, 950 N.Y.S.2d 707 (lSI Dept. 2012) It is submitted that this approach goes beyond the holding in Grimm . In this case, the Respondent could have presented all that she presented in her complaint earlier without resort to claiming fraud. The alleged fraud in no way impeded her ability to file a timely rent overcharge complaint. The same information that was available to her at the time she filed her complaint (including the prior rent history she presented with her complaint and obtained through DHCR printouts) was available to her when she moved in to her apartment on March 1,2007 at which time, and for a significant time after, the bump in rent described by the Appellate Division was well within the four-year period for claiming a rental overcharge. The dissent is correct in its statement that the Appellate Division's decision, relying as it does on the Respondent's claims without any real evidence to support it, eviscerates the four-year statutory rule whenever a tenant alleges fraud, even without any particularity. Conclusion It is respectfully submitted that DHCR's decision not to test the legitimacy of the base date rent was not arbitrary or capricious and was not irrationally based. The Appellate Division should not have substituted its own judgment for the reasoned assessment ofDHCR and should have upheld the Supreme Court's affirmation of the DHCR determination under review. Gomez v. DHCR, 79 A.D.3d 878, 912 N.Y.S.2d 444 (2d Dept. 2010) Iv. to app. den. 17 N.Y.3d 713, 933 N.Y.S.2d 653 (2011). DHCR acted in accord with lawful procedure and its determination should have been upheld. 13 In sum, the Respondent's claim upon which the Appellate Division relied, did not meet the standard set forth in Grimm for setting forth a colorable claim of a fraudulent scheme to deregulate the apartment. As stated by the dissent, Respondent's claims were based on her own subjective belief that the improvements could not have cost more than $5000, and thus was conclusory and insufficient. Just as importantly, the dissent also points out that the Owner had complied with its registration requirements and that "the information on which [Respondent's] overcharge claim is based was known to her when she moved into the apartment in 2007, at which time she was within the four-year period permitting a challenge to the rent without having to show a fraudulent predicate." 110 A.D.3d at 597. DHCR views seriously the directives contained in Grinim, and there is an obvious discomfort in a regulatory process that, due to the sheer number of cases, provides for improvement increases without immediate review even if such review still may be had within a four-year period. It is noted that DHCR has recently amended the Rent Stabilization Code to include, among other things, a setting of the base date rent pursuant to the default rent-setting method as described therein where the base date rent is the product of a fraudulent scheme to deregulate the apartment, as well as other legitimate exceptions to the four year period review. See RSC §2522.6 (b), §2526.1 (a)(2)(ii)-(ix), § 2526. I(a)(3)(iii) and §2526.1(g). Nevertheless, in this case, Respondent has not set forth what is needed to trigger a rent review beyond four years. The Appellate Division's majority thus improperly applied the standard set forth by this court in Grimm and its order should be reversed. It is respectfully submitted that the Appellate Division's decision be reversed and the decision of the Supreme Court upholding DHCR be reinstated. Respectfully submitted, New York State Division of Housing and Community Renewal Gary R. Connor General Counsel By: t~~ 14 Letter sent by overnight mail to: Northern Manhattan Improvement Corporation Legal Services Attorneys for Respondent Attn. Kenneth Rosenfeld, Esq. 76 Wadsworth Avenue New York, NY 10033 Rappaport, Hertz, Cherson & Rosenthal, P.C. Attorneys for Appellant 232/242 Realty Co. Attn: David I. Paul 118-35 Queens Boulevard, 9th Floor Forest Hills, NY 11375 Three copies of the following enclosures were sent to the Court of Appeals: Appellate Division Record Respondent K. Boyd Appellate Division brief Appellant 232/242 Realty Co. Appellate Division response brief Appellant NY State DHCR Appellate Division response brief Respondent K. Boyd Appellate Division reply brief Plus one original of DHCR's Return 15