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, 2014To be Argued by: JACK KUTTNER New York County Clerk's Index No. 110437/11 ~uprtmt Qtnurt nf t4t ~tatt nf Ntnt lnrk APPELLATE DMSION-FIRST DEPARTMENT In the Matter of the Application of KELLEYS. BOYD, For a Judgment Under Article 78 of the Civil Practice Law and Rules, -against- NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL -and- Petitioner-Appellant, 232/242 REALTY CO. LLC aka UPTOWN REALTY, C-UPTOWN REALTY, ROBERT CANDEE, OWNER, Respondents-Respondents. BRIEFFORRESPONDEN~RESPONDENT NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL JACK KUTTNER of Counsel GARY R. CONNOR, GENERAL COUNSEL Attorney for Respondent-Respondent New York State Division of Housing and Community Renewal 25 Beaver Street, 7th Floor New York, New York 10004 (212) 480-7439 jkuttner@nyshcr.org Press of Fremont Payne, Inc. • 55 Broad Street, Third Floor, New York, NY 10004 • (212) 966-6570 Printed on Recycled Paper TABLE OF CONTENTS Page TABLE OF AUTHORITIES ............................................................... .i PRELIMINARY STATEMENT ............................................................ ! COUNTER-STATEMENT OF THE QUESTION PRESENTED ..................... 2 COUNTER- STATEMENT OF THE FACTS AND PRIOR PROCEEDINGS ..... 3 ARGUMENT ................................................................................. 14 THE LOWER COURT PROPERLY UPHELD DHCR'S PAR ORDER WHICH WAS IN FULL ACCORD WITH THE APPLICABLE LAW AND HAD A RATIONAL BASIS IN THE ADMINISTRATIVE RECORD ........................ l4 CONCLUSION .............................................................................. 32 TABLE OF AUTHORITIES Cases Page 72A Realty Assocs. v. Lucas, 101 A.D.3d 401,955 N.Y.S.2d 19 (1st Dept., 2012) ....................................................................... 19-20 72A Realty Assocs. v. Lucas, 32 Misc.3d 47, 929 N.Y.S.2d 349 (App. Term, 1st Dept.,20 11) ...................... -............. _ ....................... 20,26 72A Realty Assocs. v. Lucas, 28 Misc.3d,585, 902 N.Y.S.791 (Civ. Ct., N.Y. Co., 2010) ...................................... · .......................... 20 Anderson v. Lynch, 292 A.D.2d 603, 739 N.Y.S.2d 622 (2nd Dept. 2002) ......... 17 Bambeckv.DHCR, 129 A.D.2d 51, 57, 517 N.Y.S.2d 130,134 (1st Dept., 1987) ............................................................................. 31 . Bogatin v. Windermere OWners LLC, 98 A.D.3d 896, 950 N.Y.S.2d 707 (1st Dept. 2012) .......................................................................... 30-31 Dignam v. 305 Riverside Corp., 2012 WL 1410085 (Sup. Ct. NY Co.2012) ..... .31 Gomez v. State of NY. Div. of Hous. and Comm. Renewal, 79 A.D. 3d 878, 912 N.Y.S.2d 444, (2d Dept. 2010) lv. to app. denied, 17 N.Y.3d 713, 933 N.Y.S.2d 653 (2011) .............................................................. 17, 21-22 Gomez v. NY. State Div. of Hous. and Comm. Renewal , 23 Misc. 3d 1107A, 885 N.Y.S.2d 711(Sup. Ct. Kings Co., 2009) ................................ 21 Grimm v. DHCR, 15 N.Y.S.3d 358, 912 N.Y.S.2d 491(2010) ..... 8,10,11,12,17,18, 22,24,25 ,26,28,3 0 Hawco v. DHCR,218 A.D.2d 294,722 N.Y.S.2d 150 (lstDep't., 2001) ........... 16 1 Howard-Carol Tenant's Ass 'n. v. New York City Conciliation and Appeals Bd., 64 A.D.2d 546, 406 N.Y.S.2d 845 (1st Dept. 1978), aff'd 48 N.Y.2d 768, 423 N.Y.S.2d 911 (1979), reargument denied!!. 48 N.Y.2d 1027, 425 N.Y.S.2d 1029 (1980) .................................................................................. 18 Howell v. Francesco, 195 Misc. 2d 844, 846, 760 N.Y.S.2d 618, 619 (App. Term, 2d Dept. 2003) .......................................... : .................... 31 Pehrson v. DHCR, 34 Misc.3d 1220(A), 2011 N.Y. Slip Op. 52487(U) (Sup: Ct. NY Co. Billings, J.) .................. ~ .................. ; ..................... 27 -29 . Pell v. Board ofEduc., 34 N.Y.2d 222, 356 N.Y.S.2d 833 (1974) ................... 14 Roberts v. Tishman-Speyer, 13 N.Y.3d 270, 899 N.Y.S.2d 388 (2009) ........... 6,8 Rovito v. Melendez, 175 Misc.2d 279, 669 N.Y.S.2d 779 (App. Term, 2nd Dept. 1997) ................................................................... 17 Rurodan Corp .. v. Natiello, 21 Misc.3d 1129A, 873 N.Y.S.2d 515 (Civ. Ct. N.Y. Co., 2008) ................................................................ 29-30 Theoharidou v .. Newgarden, 176 Misc.2d 97, 673 N.Y.S.2d 813 (App. Term, 1stDept. 1998) ............................................................................. 19 · Thornton v. Baron, 5 N.Y.3d 175, 800 N.Y.S.2d 118 (2005) ................... 10,11,18, 24,25,30,31 White v. DHCR, et al, 2013 N.Y. Misc. LEXIS 723 (Sup. Ct., N.Y. Co., Schlesinger, J., 02/19/13) ................................. 18,23-24 Zafra v. Pilkes, 245 A.D.2d 218,666 N.Y.S.2d 633 (lstDept. 1997) .................. 16 Statutes and Regulations CPLR Article 78 .............................................................................. 2 CPLR Section 213-a .................................................................... 15,29 11 CPLR Section 3211 ........................................................................ 30 · L. of 1997, ch. 116, §33 ................................................................ 15,16 Omibus Housing Act ....................................................................... 15 Rent Regulation Reform Act of 1997, L. 1997, ch. 116 ........................... 15,16 Rent Stabilization Law, Administrative Code of the City ofNew York § § 26-501, et seq ....................................................................... . 4,8, 14 RSL § 26-504.1 ............................................................................... 9 RSL § 26-504.2 ............................................................................. 4,9 RSL § 26-512 ................................................................................ 14 RSL § 26-516 ............................................................................. 14,15 RSL § 26-516(a)(2) .......................................................................... 16 RSL § 26-516(a)(2)(iii) .......... ~ ........................................................... 15 Rent Stabilization Code, 9 N.Y.C.R.R. §§ 2520 et seq ........................... .. .4,8,14 RSC § 2520.11 ................................................................................. 4 RSC § 2522.1 .................................................................................. 14 RSC § 2522.4 ................................................................................. 14 RSC § 2525.2 ................................................................................. 14 RSC § 2526.1 ................................................................................. 14 Other Authority L. 1997, ch.116, Mem. In Support, S.7492 ............................................ 16 111 SUPREME COURT OF THE STATE OF NEW YORK APPELLATE DIVISION: FIRST DEPARTMENT --------------------------------------------------------------------}( In the Matter of the Application of KelleyS. Boyd, Petitioner-Appellant, For a Judgment Under Article78 Of the Civil Practice Law and Rules, -against- New York State Division of Housing and Community Renewal, -and- 232/242 Realty Co. LLC aka Uptown Realty, C-Uptown Realty, Robert Candee, Owner Respondents-Respondents. ---------------------------------------------------------------------}( PRELIMINARY STATEMENT New York Co. Clerk's IndeJ( No. 110437/2011 This is an appeal from a judgment ofthe Supreme Court, New York County ("Judgment") issued by the Honorable Barbara Jaffe on May 11, 2012 and duly entered in the office ofthe Clerk ofthe Court on May 18, 2012. The Judgment denied the relief sought and dismissed. Petitioner-Appellant's CPLR Article 78 proceeding. The Judgment also granted the motions brought by Respondents-Respondents New York State Division ofHousing and Renewal and 232/242 Realty Co. LLC for orders quashing judicial subpoenas duces tecum. 1 served on each of those parties by the Petitioner-Appellant. The Judgment also vacated the stay of a housing proceeding brought against the Petitioner- Appellant, entitled 2321242 Realty Co. LLC v. Kelley Boyd, L&T Index Number 91598/10 (New York City Civil Court, Housing Part). This CPLR Article 78 proceeding was commenced by the Petitioner- Appellant, KelleyS. Boyd ("Appellant"), the tenant of the subject rent stabilized housing accommodation, to review an order {"PAR Order") issued by the New York State Division of Housing and Community Renewal ("DHCR") on July 19,20 11, which denied a Petition for Administrative Review ("PAR") filed by the Appellant. The PAR Order affirmed the decision ofDHCR's Rent Administrator which, while finding that the rent for the subject apartment is regulated under the Rent Stabilization Law and Code, denied Appellant's complaint of rental overcharge, found no overcharge had been collected and determined the legal regulated rent for the apartment. The PAR Order affirmed that the Rent Administrator had properly used the rent reserved in the lease in effect four years prior to the filing of the overcharge complaint as the base rent for determining whether any rent overcharge was collected, in conformance with the Rent Stabilization Law and Code and relevant case law. COUNTER-STATEMENT OF THE QUESTIONS PRESENTED Did DHCR have a rational basis for its finding that Appellant failed to 2 meet her burden of proof that DHCR should, rather than apply the four-year limitation on review of rent history, investigate the legitimacy of the base date rent, where Appellant failed to show sufficient evidence of substantial indicia of fraud or of a fraudulent scheme to destabilize the apartment? The Court below answered in the affirmative. COUNTER-STATEMENT OF THE FACTS AND PRIOR PROCEEDINGS Appellant, the rent stabilized tenant of apartment filed a complaint of rental overcharge with DHCR on April 7, 2009 (see the Administrative Return ["R."] submitted with this brief at A-1 ). Appellant stated in her complaint that she had moved into the. apartment over two years earlier, on March 1, 2007 pursuant to a one year lease at a rent of$2000.per month. In the complaint she asserted that in 2004, a long standing tenant of the subject apartment, who was paying rent of$571 per month, had died. She stated that the monthly rent for the subject apartment, was then increased to $1750. Appellant submitted with her complaint a copy of registration information obtained from DHCR records showing that the apartment was registered as vacant in the annual apartment registration filed for the apartment in 2004, with the last legal regulated rent set forth as $571.70 per month and that in 2005 the annual registration for the apartment showed that there was a legal regulated rent of $1750 3 charged pursuant to a one year vacancy lease. Petitioner also attached copies of her own leases for the apartment for the period of her tenancy up to and including a one year renewal lease in effect at the time of the filing of the overcharge complaint whose term commenced March 1, 2009. The 2009 lease renewal contained a lease rider which reserved a legal rent of $2152.70, and disclosed a lower preferential rent of $2060 per month for the period of that lease renewal. In response to the overcharge complaint (R. A-5), 232/242 Realty Co., LLC("the Owner") stated that in accordance with the pertinent provisions of the Rent Stabilization Code, 9 N.Y.C.R.R. §§ 2520 et seq., ("RSC "),the base date for det_ermining whether or not there was a rent overcharge was April 7, 2005 since the complaint was filed on April 7, 2009. The Owner stated that the base date tenants residing in the subject apartment were doing so pursuant to a lease at a monthly rent of$1750 per month. The Owner also asserted that since the Appellant took occupancy of the apartment pursuant to a $2000 per month rent, the apartment could be considered exempt from the Rent Stabilization Law, Administrative Code of the City ofNew York§§ 26-501, et seq.("RSL").See RSL §26-504.2; RSC § 2520.11. The Owner submitted copies of the lease history for the subject apartment from the base date forward up until the Appellant's tenancy as well as computer printouts from the Owner's records showing the rent actually paid every month by the prior tenants in occupancy from the base date forward. 4 In reply (R. A-8), Appellant stated, among other things, that the Owner represented the subject apartment as rent stabilized at the time the apartment was rented to her; that she received a rent stabilized rider for her lease; and that the annual registration for the apartment for 2007 did not show that it had become deregulated. In addition, Appellant stated that as of the previous October (2009), the building was part of the" J-51" tax abatement program. Appellant also claimed that the utilization of the four- year imitation for the examination of rent history in an overcharge complaint should be waived based upon alleged fraudulent behavior on the part of the owner in raising the rent in 2004 from $571 per month to $1750 per month in 2004 pursuant to a vacancy lease, although that increase occurred before the base date for determining whether there was a rental overcharge. Appellant asserted, therefore, that subsequent rents, including Appellant's vacancy rent of $2000 per month should not be considered legal rents. Appellant also alleged that other apartments in the subject building should be investigated for rental overcharges. On March 12, 2010 DHCR's Rent Administrator issued an order under docket no. XD410053R denying the rent overcharge complaint (R. A-10). DHCR's Rent Administrator found that the base date for the proceeding was April 7, 2005, which is the date four years prior to the filing date of Appellant's 5 complaint and that subsequent rental increases were legal increases as shown pursuant to a rent calculation chart attachedJo the order. The Rent Administrator also found that because the Appellant's legal regulated vacancy rent was in excess of two thousand dollars per month, the subject apartment was no longer subject to the Rent Stabilization Code at the time petitioner took occupancy. However, shortly thereafter, on April15, 2010 DHCR's Rent Administrator issued an order re-opening the overcharge proceeding (R. B-3). The case was re- . opened because the Owner was receiving "J-51" tax benefits for the subject building at the time Appellant took occupancy of the subject apartment. The subject apartment, therefore, was not exempt from the application of the Rent Stabilization Law and Code as wrongly determined in the original overcharge order based upon the rent charged for the apartment. In response to the re-opening, the Owner did not dispute the rent stabilized status of the subject apartment. The Owner's contrary assertion in answer to the original overcharge complaint had been written before the Court of Appeals decision in Roberts v. Tishman-Speyer, 13 N.Y.3d 270, 899 N.Y.S.2d 388 (2009) which reversed previous DHCR interpretations of the status of such apartments and held that under rent regulation, apartments in buildings which were the source of "J-51" benefits could not be exempt from that regulation by reason of high rent or high income deregulation. 6 The Owner stated, however, in any event, that the rent charged the Appellant upon her occupancy and subsequently did not exceed permissible stabilized rent increases. Since no overcharge had occurred from the basedate in April, 2005 forward, the complaint should be 'dismissed regardless of the apartment's regulatory status. The Owner attached copies of Appellant's renewal leases to the response. The last renewal lease expired on February 28, 2010, and contained a . preferential lease rider which preserved a legal regulated rent of$2152.70 while agreeing to accept from Appellant a preferential rent of$206~.00 (R. B-6). On October 4, 2010, DHCR's Rent Administrator issued his "Order Pursuant to Reconsideration" under Docket No. YD41 0002RK (R. B-9). It revoked the previous order issued under Docket No. XD41 0053R and found that the subject apartment remained subject to rent regulation because the building was receiving J-51 benefits. However, the Rent Administrator also found that even though the rent for the apartment 'remained subject to rent regulations, no overcharge had occurred. The Rent Administrator stated: The base date for an overcharge proceeding is the date four years prior to the filing date of the complaint. The case was filed on 04/07/2009. The base date is 04/07/2005 with a base rent of$1750.00. Rental events occurring prior to the base date are not subject to challenge and shall not be examined. The Appellant filed an administrative appeal, termed a Petition for Administrative Review, or "PAR" challenging the Rent Administrator's 7 order. Among other things the Appellant asserted in the PAR that error was committed in establishing the legal regulated rent based upon the four-year period for doing so set forth in the RSL and RSC and by allowing for subsequent rent increases. In addition, Appellant claimed that the rent increase outside the four- year examination period, from $571 per month to $1750 per month, was a fraud based upon claimed individual apartment improvement claims and that DHCR' s "default formula" should be used to calculate the legal regulated rent for the subject apartment without-any allowance for increases. The Appellant cited the Court's decision in Grimm v. DHCR, 15N.Y.S.3d 358, 912 N.Y.S.2d 491(2010) as supporting his claim. With regard to the merits of Appellant's PAR, the Owner stated (R.C-7) that the complaint was filed before the Court of Appeals decided Roberts v. Tishman- Speyers Properties, L.P., 13 N.Y.3d 270, 890 N.Y.S.2d 388 (2009), contrary to the generally held consensus, and held that apartments in buildings receiving J-51 tax abatements were not deregulated where rent levels otherwise surpassed the threshold for deregulation after a vacancy. There clearly was no fraud in asserting a claim of deregulation since it was generally believed prior to the Roberts case, and supported by writings of the DHCR, that apartments in such buildings could be destabilized either by such a vacancy or by order of the DHCR due to the high 8 income of tenants already in an apartment when the rent level threshold was surpassed. See RSL §§ 26-504.1 and 504.2. The Owner also stated in response (R. C-7) that there was no indicia of fraud or evidence that the Owner intended to circumvent.the RSL and RSC. The mere rise in rent that took place between 2004 and 2005 after the long tenancy of a prior tenant was insufficient to constitute evidence offraud. Further, the Owner claimed that the subject apartment was renovated. The Owner also submitted, in addition to all the leases from the base date forward, a copy ofthe original1972 vacancy lease ofthe 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. It showed that the Owner took a vacancy allowance increase of 17%, a guidelines increase, and an increase of$975.35 for new equipment and apartment improvements to reach the new rent. However, this increase occurred before the rent base date for determining Appellant's overcharge complaint. The Owner also submitted a copy of a letter from the tenant under this lease indicating that she was vacating the apartment in 2004. The Owner also resubmitted the copy of the vacancy lease for the next tenant which constituted the base date lease along with the rent stabilized lease rider for that lease, indicating how the rent was derived. 9 In reply to the Owner's response to the PAR, the Appellant claimed, among other things, that from her observation of the apartment, no extensive renovations were performed to justify a large rental increase as was taken. In addition, the Appellant asserted that the Owner's actions in treating the apartment as stabilized by informing her that it was, by attaching a stabilized lease rider to the lease and then later recording a preferential rent in the2009 annual apartment rent registration which asserted the stabilized status of the apartment, and then asserting in response to the overcharge complaint that the apartment should not be stabilized because her rent was over $2000 per month was fraud (see R. C-11 ). Appellant . therefore asserted that DHCR should look back beyond the base date four years from the filing ofher complaint (R. C-16). The Appellant also repeated an allegation that there had been arbitrary settings of rent levels in other apartments in the subject building (R. C-18). On July 19, 2011 DHCR issued its "Order and Opinion Denying Petition for Administrative Review" under Administrative Review Docket No. YK410057RT ("the PAR Order", see R. C-19). In denying the Appellant's PAR, DHCR found no basis for setting aside the four-year rule for the examination of rent history iri overcharge cases and found that the determinations in Grimm v. DHCR, 15 N.Y.3d 358, 912 N.Y.S.2d 491 (2010) and Thornton v. Baron, 5 N.Y.3d 175, 800 N.Y.S.2d 118 (2005),both cited 10 by Appellant in support of her position, were inapplicable. In denying the PAR DHCR stated: Before it can be said that the facts in any given case are so like the facts in Grimm as to warrant an investigation by this agency into the legality of the base date rent, a certain combination of circumstances must be found. An increase in the rent alone will not suffice to establish a colorable claim of fraud and a mere allegation of fraud is not sufficient. (15 NY3d 358, at 368) The three part test of factors set forth in the Grimm decision are: (1) a combination of circumstances alleged by the tenant that point to other violations of the RSL or RSC; (2) a fraudulent deregulation scheme; and (3) a variance in the registration history from the lease history. R. C-19 at page 5. DHCR then found in the PAR Order that there was nothing in the record to support the first two factors, and as to the third there was one single variance which was not comparable to the alleged statements and behavior of the owner in Grimm or the elaborate deregulation scheme in Thorton and that the variance was not a misstatement but rather a clerical error. DHCR then stated, in part, as follows: In summary, the Commissioner finds it logically untenable to try to equate anything in the way of a representation or statement by this Owner with the facts in the Thornton case or the Grimm case. Therefore, the Commissioner finds no justification for setting aside the four-year rule and putting the owner to its proof as to the cost of the IAis; especially when it would not be difficult for anyone with any experience in this industry to believe that it could have taken $39,000 in IAis to update the appearance and equipment in an apartment which had not changed hands for thirty-two years. 11 Accordingly, the Commissioner finds that nothing in the decisions issued in the Thornton case or the Grimm case, or anything in this record, warrants a determination in this case which is different from that which is contained in the appealed order. SeeR. C-19 at pages 5-6. Appellant then commenced the CPLR Article 78 proceeding. Appellant claimed, as the thrust of her Article 78petition, that it was "arbitrary and capricious" as well as an "abuse of discretion" for DHCR to have found that the overcharge complaint did not meet the standard of the Grimm case as set forth in the PAR order for necessitating an investigation into the legality of the base date rent (see paragraph 6 of the Article 78 petition at pages 21 to 23 of the Record on Appeal, hereafter, "RA"). On May 11, 20 12 the court below (the Honorable Barbara Jaffe) issued a decision and judgment which denied the relief requested by the Appellant in the Article 78 petition and dismissed the proceeding (RA at pages 5 to 12). The court below found that DHCR was not arbitrary and capricious in finding insufficient indicia of fraud to warrant examination of the rental history for Appellant's apartment beyond the four- year limitation period set forth in the RSL and RSC. The court below stated in this regard: Here, in concluding that there were insufficient · indicia of fraud to warrant examination of the rental history for petitioner's apartment beyond the four-year limitation period, the Deputy Commissioner for DHCR's Rent Administration 12 rationally distinguished the building owner's behavior from that of the landlords in Grimm and Thornton v. Baron, 5 NY3d 175 (2005). Whereas they engaged in fraudulent deregulation by, inter alia, requiring tenants to sign leases containing a provision that their apartments would not be their primary residences, increasing rent without providing rent stabilized lease riders, and threatening to raise rents if tenants failed to perform repairs at their own expense, the building owner here always registered the apartment as rent stabilized, even when the registered rent exceeded the $2,000 limit for rent stabilized apartments, and provided rent stabilized lease riders. (Affirmation of Jack Kuttner, Esq., in Opposition, dated Nov. 17, 2011, Exh. A).Moreover, the Commissioner noted that, in contrast to the circumstances set forth in Grimm and Thornton, the rent increase at issue occurred after the building owner renovated the apartment for the first time in 32 years and that "it would not be difficult for anyone with any experience in this industry to believe that it could have taken $39,000" to do so. (Affirmation of Jack Kuttner, Esq., in Opposition, dated Nov. 17, 2011, Exh. A). RA pages 9 to 10. In addition, the court below also granted the separate motions of DHCR and the Owner to quash respective judicial subpoenas duces tecum served upon them during the course of the Article 78 proceeding. The court properly found that because review of an administrative agency's determination is limited to the record before the agency, the information sought by the Appellant in the subpoenas was irrelevant to the Article 78 proceeding. The court below also vacated its previously granted stay of a housing court proceeding brought by the Owner against the Appellant. 13 ARGUMENT THE LOWER COURT PROPERLY UPHELD DHCR'S PAR ORDER WHICH WAS IN FULL ACCORD WITH THE APPLICABLE LAW AND HAD A RATIONAL BASIS IN THE ADMINIS- TRATIVE RECORD The court below found it was neither arbitrary nor c.apricious for DHCR to refuse to examine the rental history of the subject apartment prior to the four-year period preceding the filing of the rent overcharge complaint because the Appellant failed to submit evidence that the initial rent was fraudulently set by the Owner as part of a fraudulent scheme to deregulate the apartment. As such, the court applied the proper legal standard and correctly upheld DHCR's PAR Order. Pell v. Board ofEduc., 34 N.Y.2d 222, 356 N.Y.S.2d 833 (1974)(RA pages 5 to 12). The RSL and RSC provide a system of regulation which governs the rent which may be charged for rent stabilized housing accommodations, and provides that owners of such housing accommodations may obtain rent increases only upon certain specific limited grounds set forth in the Code. This regulatory system is administered by DHCR. DHCR, as the administrator of the system, has jurisdiction to establish the lawful stabilized rent for regulated apartments and to determine whether or not there is an overcharge. RSL §§26-512 and 26-516; RSC §§ 2522.1, 2522.4, 2525.2, and 2526.1. 14 On June 19, 1997 the Legislature enacted the Rent Regulation Reform Act of 1997 ("the RRRA", L. 1997, Ch. 116) .Section 33 of the RRRA of 1997 amended § 26-516 of the RSL to expressly preclude courts and DHCR from examining rent records more than four years prior to the filing of a rent overcharge complaint and directed DHCR to promulgate regulations in accordance therewith. RSL §26-516a(2)(iii), as amended, clearly stated 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." L. 1997, Chapter 116, §33. The RRRA of 1997 also amended §213-a of the CPLR by adding a four-year limitation on the award and calculation of any overcharge. See L. 1997, Chapter 116, §33. This provision was in addition to those already in effect which had relieved owners from the obligation of maintaining or producing more than four years of rent records. In addition to the four-year record retention limitation and the four- year limitation on challenges to rent registration statements as contained in the Omnibus Housing Act (OHA), the RRRA of 1997 clarified the language ofRSL §26-516: ... 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 15 overcharge having occurred more than four years before the complaint is filed .... (ii) ... 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. L. of 1997 Ch. 116, §33, amending RSL §§26-516a(2). The legislation was intended to make clear the Legislature's intent when it enacted the OHA in 1983 that examination of rental history beyond the four years prior to the overcharge complaint be precluded. (See, L. 1997, ch.116, Mem. In Support, S.7492,). Soon after the enactment of the RRRA the Appellate Division, in Zafrav. Pilkes, 245 A.D.2d 218, 666 N.Y.S.2d 633 (1 stDept. 1997), reversed itself upon reargument and held that the RRRA had by "unambiguous" and "unqualified" . language operated specifically to "preclude examination of the Tent ~istory of the housing accommodation prior to the four-year period preceding the filing of the complaint." The Court noted that this provision of the RRRA was to take effect immediately and apply to "any action or proceeding pending in any court ... " Id at 219. It is, therefore, as a general rule, outside DHCR's jurisdiction to base a finding of rent overcharge upon a rent registration statement pertaining to a period more than four years prior to the filing date of the complaint. Haw co v. DHCR, 218 A.D.2d 294, 722 N.Y.S.2d 150 (1 stDep't., 2001). The four-year limitation bars 16 consideration of prior rent registrations even if they reveal 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); Theoharidou v. Newgarden, 176 Misc.2d 97, 673 N.Y.S.2d 813 (App. Term, 1 stDept. 1998); Rovito v. Melendez, 175 Misc.2d 279,669 N.Y.S.2d 779 (App. Term, 2nd Dept. 1997). The four- year statute of limitations of the review of rent history has been repeatedly endorsed by courts. While courts have fashioned limited exceptions to this statutory bar, DHCR rationally determined that Appellant's own particular circumstances do not, based on DHCR' s evaluation of the facts, fall within those exceptions. In Grimm v. State of N.Y. Div. of Hous. & Comm. Renewal, 15 N.Y.3d 358, 912 N.Y.S.2d 491 (2010), cited by Appellant in the administrative proceeding in support of her position, the Court ruled allegations of fraud alone are not sufficient to necessitate DHCR to inquire further. Evidence of a landlord's fraudulent scheme to remove an apartment from deregulation is required. Jd.at 367. In a proceeding involving similar tenant allegations to those herein, Gomez v. State of NY. Div. ofHous. and Comm. Renewal, 79 A.D. 3d 878,912 N.Y.S.2d 444, (2d Dept. 2010) lv. to app. denied, 17 N.Y.3d 713, 933 N.Y.S.2d 653 (2011), the Appellate Division, Second Department held that DHCR properly refused to examine rental history prior to four-year period because, contrary to the tenant's allegations, there were no substantial indicia of fraud on the record. Even where 17 there is clear evidence that an owner engaged in pervasive fraud to evade the rent laws, the legal rent level itself cannot be determined by going outside the permissible four years but is determined using a "default" rent setting method. See, Thornton v. Baron, 5 N.Y.3d 175, 800 N.Y.S.2d 118 (2005). Contrary to Appellant's claims, DHCR doest?-'t argue in this proceeding for limitations to the decisionsin Thornton v. Baron, 5 N.Y.3d 175 and Grimm v. State of NY. Div. ofHous. & Comm. Renewal, 15 N.Y.3d 358. DHCR has, however, in a well reasoned and detailed PAR Order (see for instance, R. C-19), found that the factual circumstances of thi_s proceeding do not come within the purview of the criteria that the courts themselves set forth in those decisions for examining rental history prior to the four year period. Thus, DHCR rationally found no presence of the substantial indicia of fraud necessary to require the examination of the legitimacy" of the base date rent(R. ~-19, page 5). These factual findings may not be overturned by a court in an Article 78 proceeding merely because a court would find it might have held differently. Howard-Carol Tenant's Ass 'n. v. New York City Conciliation and Appeals Bd., 64 A.D.2d 546, 406 N.Y.S.2d 845 (1st Dept. .. 1978). Further, in a recent decision, the court acknowledged that the Court of Appeals made clear that the "fraud" exception to the four- year rule is a "relatively narrow one." See White v. DHCR, et al, 2013 N.Y. Misc. LEXIS 723 (Sup. Ct. , N.Y. Co., Schlesinger, J., 02/19/13). 18 Appellant places great reliance on this Court's decision in 72A Realty Assocs. V. Lucas, 101 A.D.3d 401, 955 N.Y.S.2d 19 (1st Dept., 2012) claiming the circumstances herein are analogous to those described in that decision (page 16-1 7, Appellant's Brief). However, the basis for the modification of the lower court's decision in Lucas. is not applicable to the circumstances herein. ·' - The Court in Lucas,101 A.D.3d at 403, set forth as the basis for disallowing the use of the four- year base date to set the rent: The courts below, however, erred in setting the base date rent for the overcharge counterclaim at the $2,250 per month rate based on the market rate in the lease effective for October 2004. While the date is correct under CPLR 213-a, in light of the improper deregulation of the apartment and given that the record does not clearly establish the validity of the rent increase that brought the rent- stabilized amount above $2,000, the free market lease amount should not be adopted, and the matter must be remanded for further review of any available record of rental history necessary to set the proper base date rent. The rent increase challenged by Appellant herein did not bring the rent stabilized amount over the $2000 threshold and was not used for the improper deregulation of the apartment. Neither did DHCR use a "free market lease amount" as the base rent for computing the Appellant's rent. Further, (unlike the tenant in Lucas.) Appellant was informed at the time she took possession of the subject 19 apartment that she was a stabilized tenant and given a stabilized lease rider informing her of the status of the apartment and her rights as such. Appellant had a lengthy period of time (over a year) to challenge her rent which would have included within the four- year period the rental increase she now seeks to challenge. The owner in Lucas obviously rented the apartment to the tenant improperly as a non-regulated tenant, and the facts of that case indicate that even the tenant prior to that tenant had paid a rent over $2000 (See lower court decision in Lucas, 28 Misc.3d 585). Since the owner in Lucas improperly rented the apartment as unregulated, there was no basis to assume the tenant in Lucas was aware. of her actual status and aware at the time that she could challenge her rent. Thus, the market rent was not suitable as a base rent. Contrary to the claims made in Appellant's brief, DHCR did not heavily rely on the Appellate Term's decision in 72A Realty Assocs. v. Lucas, 32 Misc.3d 47, 929 N.Y.S.2d 349 (App. Term 1st Dept.,2011). DHCR did cite it for the seemingly indisputable assertion that the treatment of the Appellant as a stabilized tenant did not constitute the kind of substantial indicia of a fraudulent scheme which would necessitate piercing the base date (see RA at page 269). DHCR also cited that decision contrasting the circumstances of the owner in that decision to the Owner herein who in actual practice had not registered petitioner's apartment as exempt at anytime (RA at page 271). 20 DHCR, in the proceeding below, also cited the decision of the Appellate Division, Second Department in Gomez v. N.Y. State Div. of Hous. and Comm. Renewal, 79 A.D. 3d 878.(A copy ofthe lower court's decision in Gomez v. N.Y. State Div. ofHous. and Comm. Renewal, 23 Misc. 3d 1107A, 885 N.Y.S.2d 711 (Sup. Ct. Kings Co., 2009) which sets forth the facts in that proceeding may be found at RA 250-256.) The Appellate Division, Second Department specifically found that DHCR properly refused to examine the rental history of the subject apartment prior to the base date, finding that tenant's contention that there were substantial indicia of fraud on the record to be without merit. The tenant in Gomez filed an overcharge complaint in 2007 claiming that there was a large increase inrent (41 %) just prior to tpe time she moved into the apartment in 200 1. The tenant alleged in the overcharge complaint that the largest share of the increase was due to a decision by a prior owner to treat the tenant's apartment as permanently exempt from · stabilization. Based on that the tenant in Gomez alleged that the prior owner "knowingly and willfully" perpetrated a fraud against the tenants, the DHCR and the public. The tenant also alleged that all rent increases based on the "fraudulent" rent registration were illegal. The current owner in Gomez filed an application as to whether the subject building was exempt from regulation by virtue of substantial rehabilitation and DHCR found it was subject to the RSL. 21 The Appellate Division upheld DHCR's finding of no overcharge since all rent adjustments after the base date were lawful. As stated by the Appellate Division: Here, the DHCR properly refused to examine the rental history of the subject apartment prior to the four-year period preceding the filing of the rent overcharge complaint because the petitioner's contention thatthere were substantial indicia of fraud on the record is without merit [citations omitted]. 79 A.D.2d at 879. Here too, there simply were no substantial indicia of fraud as required by Grimm. Appellant's main allegation as. to what constitutes the indicia of fraud continues to be that there was no cause f~r the large rental increase occurring prior to the base date because not enough apartment improvements could have been performed to justify it. Contrary to what Appellant implies in her brief, DHCR did not avoid addressing Appellant's claim. See RA pages 267-268.Appellant's claims as to the extent of work which was performed in this and other apartments and her own self- interested statements as to their value (which in any event is not the quantum of proof for such rent increases; rather, the cost is.), more than five years after the increase occurred and to the extent to which the rent could be raised based on the improvements, are her own subjective allegations and are simply a matter of rephrasing that there was an improper large increase in rent. The Court of Appeals in Grimm held this to be insufficient. 15 N.Y.3d at 368.Appellant did not even 22 bother obtaining a statement from a contractor in this regard. It is inadequate to propel this allegation to a substantial indicia of a fraudulent scheme to deregulate. Thus, investigating the legitimacy of the base rent in this situation where subsequently the base rent only increased within stabilized· guidelines and the Appellant herself entered the apartment and was treated as a stabilized tenant but chose to forego challenging the increase until after the four- year period had moved beyond it, was unwarranted. Even when taken in concert with other alleged irregularities set forth in the Appellant's brief, it is clear that DHCR properly found that there was no basis for further examinatio~ of the legitimacy of the base rent. Appellant can hardly claim, as she does, that the Owner's failure to submit proof of the expenditures for individual apartment improvements constituted an indicia of fraud. The issue to be decided by DHCR was whether there was a basis for looking into the legitimacy of the base rent. DHCR was correct in deciding not to ask the owner to submit documentation beyond four years because there was insufficient evidence submitted by the Appellant. stated: As the court in White v. DHCR, et al, 2013 Misc. LEXIS 723, supra, While it is true that the owner did not establish (or even claim) that the rents charged were justified by an IAI, he was not required to do so because the increases at issue were outside the four year period. 23 The Commissioner properly distinguished Mr. White's case from Grimm on the ground that the tenant had not offered any evidence of a· fraudulent scheme .... Here, the lease renewal form for March, 2009 referred to by Appellant can ') hardly constitute indicia of a fraudulent scheme to deregulate. While admittedly not a normal stabilized lease form (seeR. A-1 attachment), at that late date it could hardly be deemed an inducement to make the Appellant believe she was not stabilized and thus induce her not to challenge the increase at issue. Once again, she was informed that she was a stabilized tenant and given a vacancy lease with a lease rider when she took possession of the apartment. Further, not mentioned by the Appellant in her brief, but subn;1itted with her overcharge complaint, was a copy of a preferential lease agreement rider to the lease for the term commencing March 1, 2009 which, among other things, refers to a legal maximum rent for the apartment and that the rent was registered with DHCR. This is hardly a document evincing an improper and fraudulent scheme to deregulate an apartment. DHCR determined that the one variance found, between the registration statement for 2004 and the statement in the rent stabilized rider for the base date tenants, was simply not comparable to anything in Grimm or Thorton. Rather, it was "less of a misstatement than a clerical error" caused by the Owner's failure to update the lease rider form it was using (R. C-19 at page 5). Had the Owner used the proper lease rider which required the last legal regulated rent (rather than the 24 ·rent in existence on April 4, 2004), the figure utilized was in fact correct. It was rational for DHCR to find it was nothing more than the clerical error which did not ' rise to the level of the criteria set forth in Grimm or Thorton . Certainly, there was no claim made that, regarding the tenants on that base date lease, that they ever thought that their apartment had been deregulated or there was any other inducement to stop them from investigating their rent. Just as importantly, the present tenant, Appellant herein, cannot bootstrap what DHCR has rationally found to be an inadvertent error with regard to another tenant as constituting a fraudulent scheme to deregulate her apartment. Once again, Appellant does not claim that she herself was induced in anyway not to challenge the rent or investigate the rent history in a timely fashion based upon this. Further, while Appellant attacks the credibility of the July 1, 2004 lease for the apartment which commenced prior to the base date, aside from the Appellant's use of the word fraud or fraudulent to describe it (see Appellant's Brief at page 13) the Appellant has submitted nothing to impugn the genuine nature of the lease, the lease rider accompanying it, or the handwritten letter from that tenant indicating that she was vacating the apartment well before the end of that lease term. Appellant, in support of her fraudulent scheme claim, points to the. fact that the Owner put forth the claim, at the beginning of the administrative proceeding, that the apartments should be considered deregulated. However, the Owner 25 · continued to register the apartment as stabilized.and did not increase the rent. Appellant tries to make an analogy between this Owner, who put forth such a claim (as is his right to do) in the open light of an administrative proceeding before DHCR with the behavior of owners in other cases such as 72A Realty Assoc: v.Lucas, 101 A.D.3d 401. See page 16 of Appellant's Brief. There is, of course, a world of difference. The Owner in Lucas claimed a deregulated status in the original court proceeding, and unilaterally treated the tenant as deregulated prior to the court proceeding. See, also the treatment of the tenant by ownership in Grimm, 15 N.Y.3d 358, prior to the tenant filing an overcharge complaint. The Owner has given his explanation as to why he thought the apartment might have been deregulated. The mere assertion of this claim after the Appellant filed the overcharge can hardly be deemed part of a fraudulent scheme to deregulate the apartment. The Appellant also claims that the Owner misreported her legal vacancy rent. as $2000 per month when the legal regulated rent, based upon a calculation in the rent stabilized lease rider, could have been $2119.1 7 . This is not a misrepresentation. The lease rider states that the rent is $2000 per month. The only rent reserved in the body of Appellant's actual vacancy lease is $2000 per month. The only legal rent shown in the registration is $2000 per month. The Appellant's 26 rent, therefore, as correctly shown by the Owner in the registration is $2000. There was no misrepresentation. Appellant's attempts to analogize the circumstances to those in Pehrson v. DHCR, 34 Misc.3d 1220(A), 2011 N.Y. Slip Op. 52487(U) (Sup. Ct. NY Co. Billings, J.) also fails. (The court's decision in Pehrson may be found at RA·pp. 311 to 317.) In the Pehrson proceeding, DHCR itself moved to remit the matter acknowledging the PAR Order at issue did not adequately take account of the Appellate Division's decision in Grimm 68 A.D.3d 29. As noted by the court in Pehrson, the PAR was also issued prior to the Court of Appeals "reanalysis that postdated DHCR's order" in Grimm. See RA at page 313. In Pehrson, the court found that there were three categories of factors that would warrant whether further examination of the legitimacy of the base date was called for, citing (RA at page · 314 ). These factors are whether there were allegations of circumstances that indicate violations of the RSL or RSC in addition to charging an illegal rent, evidence indicating a fraudulent scheme to remove the rental unit from rent regulation, and whether the rent registration history is inconsistent with the lease history. DHCR had previously put forth these criteria to the court in Pehrson prior to the court's decision. Appellant herein makes no claim that it disagrees with this analysis. Pehrson indicates that DHCR is trying to implement the criteria in Grimm. 27 In the PAR order under review by this Court, DHCR applied the same analysis derived from the Court of Appeals decision in Grimm, as was applied by the Pehrson court in determining whether there was sufficient indicia of fraud on the record to further investigate the legitimacy. of the base rent (See R. C-19 at page 5). As noted by DHCR, the finding that there was not sufficient indicia constitutes a factual determination for which a court in an Article 78 proceeding could not substitute its own judgment merely because it disagreed. Not mentioned by Appellant in the body of the brief was that in Pehrson,. unlike here, among other things, there were substantial possible violations of the Rent Stabilization Code in the tenants' original lease provisions which related directly to the regulatory status of the apartment. Thus the court in Pehrson stated that the tenants' original lease provided that the tenants agreed not to use their apartment as a primary residence and not as a stabilized apartment. There was also a lease provision which, in its effect, would increase the rent, if the tenants exercised the right to legal review of the rent. In Pehrson it was clear that while the registrations were for a stabilized apartment, the tenants' lease made it appear otherwise, indicating a possible dichotomy in the regulatory status evinced by the registrations as opposed to the leases. The Pehrson court therefore found the possible existence of all three factors, including the possible existence of a fraudulent deregulation scheme, and thus, examination of the legitimacy of the 28 base date rent was warranted. There was no such dichotomy in the regulatory ( status here. There is no question that in this proceeding the base date tenant, as well as the prior tenant received stabilized leases and could have challenged their rents. Appellant could also have challenged the rental increase for a ~ignificant period of time after taking possession of the apartment and still have been within the four- year base date period in doing so. Once again, the one statement in the base date lease stabilization rider referred to by Appellant was found properly by DHCR to be a clerical error rather than the baseless claim that it was an "attempt to I escape scrutiny" (see page 19, Appellant's Brief). In fact, the rent listed in that · lease rider represented the last legal,regulated rent, which was the figure to be listed on the actual current lease rider form at that time (R. C-19, page 5). None of the other cases cited by Appellant support her claims that DHCR's PAR order improperly found that there was no overcharge and no basis for warranting investigating the legitimacy of the base date leases. Rurodan Corp. v. Natiello 21 Misc.3d 1129A, 873 N.Y.S.2d 515 (Civ. Ct. N.Y. Co., 2008) stands for the proposition that the four- year limitation contained in CPLR Sec. 213-a does not apply to the issue of the regulatory status of an apartment. The decision stated: Contrary to respondent's arguments, this court is by no means precluded from reviewing the history, spanning a reasonable time frame, of a tenancy in order to determine whether the 29 premises is subject to rent regulation. This is the precise holding of the Appellate Division in East West Renovating Co. v. New York State Div. of Housing and Community Renewal, (16 AD3d 166, 167, 791 N.Y.S.2d 88 [1 stDept 2005]), where the Court stated that "consideration of events beyond the four-year period is permissible if done not for the pur- pose of calculating an overcharge but rather to determine whether an apartment is regulated" ... That Thorton, according to Appellant's own quote from the Natiello decision (see page18 of Appellant's Brief) stands only for how the rent should be set when it is found that a wrongful deregulation occurred over four years prior to the com- mencement of the proceeding, only shows how far afield Appellant attempts to go to claim fraud under Thorton and Grimm. Very simply, there was no unilateral attempt at deregulation of the apartment herein, nor anything more than Appellant's mere speculation that there was any fraudulent scheme to deregulate the apartment. There was no evidence found by DHCR of any scheme. In Bogatin v. Windermere Owners LLC, 98 A.D.3d 896, 950 N.Y.S.2d 707 (1st Dept. 2012), there was not even a decision on the merits as to whether there was sufficient indicia of fraud. The Court merely affirmed the lower court's finding that the plaintiff tenant's complaint met the very low standard necessary to avoid dismissal pursuant to CPLR Section 3 211. Further, even in that case, the 30 Court took notice that the tenant had hired an outside contractor to inspect the premises for apartment improvements, something the Appellant did not even bother to obtain. In Bogatin, the overcharge complaint was filed more than four years after that owner unilaterally treated the apartment as deregulated. In Dignam v. 305 Riverside Corp., 2012 WL 1410085 (Sup. Ct. NY Co. 2012), a lower court decision to which DHCR was not a party and by which it is not bound, the court stated that while unexplained rent increases were not sufficient to indicate fraud, the facts sufficient to warrant inquiry as to whether the owner had been engaged in a fraudulent deregulation scheme to remove an apartment from rent stabilization nevertheless existed. In Dignam, once again, the tenants took occupancy of an apartment which had been declared, years earlier in registrations _to have been permanently exempted from stabilization. By contrast, in the PAR order under review here, DHCR found that nothing in the record pointed to a deregulation scheme1 (R. C-19 at page 5, including footnotes). If one merely removes the words "fraud" and "fraudulent" from Appellant's claims it is apparent that the actual circumstances here show merely a regular overcharge complaint and not at all the sort of situation envisioned by Thornton or Grimm or the other decisions cited by Appellant. It should be noted that even 1Unlike the court in Dignam, which first considered the factual circumstances presented, the lower court here was limited to reviewing whether the administrative agency had a rational basis for its findings. Bambeck v. DHCR, 129 A.D.2d 51, 57, 517 N.Y.S.2d 130, 134 (1st Dept., 1987); Howell v. Francesco, 195 Misc. 2d 844, 846, 760 N.Y.S.2d 618,619 (App. Term, 2d Dept. 2003). 31 ' where an improper rent is charged, let alone merely alleged, that by itself does not void a lease. Additionally, even where proven, the collecting of a rent overcharge does not in itself constitute a fraud. Here, DHCR properly found the base date rent was legitimate and that there was no overcharge. CONCLUSION For all the foregoing reasons, the Judgment of the court below should be affirmed in all respects. Dated: New York, New York March 11, 2013 Respectfully submitted, GARY R. CONNOR, Attorney for the Respondent- Respondent New York State Division of Housing and Community Renewal 25 Beaver Street- ih Floor New York, New Y ork1 0004 (212) 480-7439 jkuttner@nyshcr.org M~-JCKiUTNER' Of Counsel 32 PRINTING SPECIFICATIONS STATEMENT The foregoing brief was prepared on~ computer. A proportionally spaced typeface was used, as follows: Name of typeface: Times New Roman Point size: 14 Line spacing: Double The total number of words in the brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of citations, proof of service, certificate of compliance, or, any authorized addendum containing statutes, rules, regulations, etc. is 7782. Dated: March 11, 20 13