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, 20141 RAPPAPORT, HERTZ, CHERSON & ROSENTHAL, P.C. ATTORNEYS AT LAW 118-35 QUEENS BOULEVARD NINTH FLOOR STEVEN M. HERTZ FOREST HILLS, NEW YORK 11375 DAVID I. PAUL ELIOT J. CHERSON 718-261-7700 MILAN DEY-CHAO WILLIAM J. RAPPAPORT FAX 718-261-7336 HALEH AHDOUT MICHAEL C. ROSENTHAL JOHN D. ROBALINO ROBERT I. MILLER JANET GOLDSTEIN MICHAEL A. STEINER MARIANNE NUNZIATA KENNETH T. BARANY HOON CHANG KERRY S. GLASGOLD GEORGIA MOSHOPOULOS GREGORY T. SMITH BARBARA J. FRANKFURT OF COUNSEL: JEFFREY M. STEINITZ Email: david.paul@rhcrlaw.com Direct Fax 718-709-0075 April 15, 2014 Andrew W. Klein, Chief Clerk Court of Appeals 20 Eagle Street Albany, NY 11207-1095 Re: Matter of Boyd v NYS D.H.C.R. APL-2014-00052 Revised Dear Sir: We submit this letter pursuant to Section 500.11 of the Court of Appeals Rules of Practice with the appeal of the Decision and Order entered October 29, 2013 (The “Order”) which, by a 3-2 decision: (a) reversed a judgment of the Supreme Court, (Jaffe, J.S.C.) in which the Order of the Court held that the petitioner had alleged fraud with sufficient specificity, and (b) remanded the matter to the division of Housing and Community Renewal of the State of New York 2 (“D.H.C.R.”) for further investigation of the landlord, going back more than four years. The Appellate Division, by Order entered March 6, 2014, certified the question: Was the order of this Court which reversed and vacated the judgment of the Supreme Court properly made? The specific points of this appeal are: 1. Whether the court should reverse the decision of the Appellate Division, which remanded the matter to D.H.C.R. for further investigation because there was a rational basis for D.H.C.R.’s determination not to investigate occurrences beyond the four year Statute of Limitations, as set forth in Grimm v D.H.C.R., 13 NY3d 917 (2010), in that there were no indicia of a fraudulent scheme to deregulate the apartment. 2. Whether the Court erred in adding Uptown Realty, Robert Candee and adding “a/k/a Uptown Realty” to the name of the deedholder as parties. 3 PRELIMINARY STATEMENT The Supreme Court, Hon. Barbara Jaffe, affirmed the Order of the D.H.C.R. Commissioner. The Article 78 Court found that the agency made its decision on the basis of the record; and was not arbitrary and capricious, and that there were insufficient indicia of fraud for the agency to investigate beyond the four year period, and dismissed the article 78 petition. The Appellate Division First Department, in reversing by a 3-2 majority, held that the unsubstantiated claims of Individual Apartment Improvements (IAIs) were enough to trigger an investigation that went beyond the four year period. The dissenters would have held that that more than the unsubstantiated claims were needed, that there must be evidence of additional factors leading to a “colorable” claim of a scheme to fraudulently deregulate the apartment and that this was lacking. Therefore the D.H.C.R. overcharge investigation should have been limited to the four year statute of limitations. STATEMENT OF FACTS INITIAL INVESTIGATION AND INVESTIGATION ON REMAND The appellant, who resides at Cabrini Boulevard, New York, NY, commenced a proceeding at the Division of Housing and Community Renewal of the State of New York claiming that she had been overcharged in her rent in a 4 complaint dated and filed April 7, 2009 (R169-182) under Docket No. XD- 410053-R. She took occupancy pursuant to a lease dated March 1, 2007 at a rent of $2,000.00 per month (R 136-154). The landlord nevertheless registered the apartment with D.H.C.R. (R181). When her lease expired she signed a lease effective March 1, 2009 for $2,151.70 (R 186-190) with a preferential rent of $2,060.00 (R 193). The tenant then filed an overcharge complaint against the landlord. She complained that a rent increase in 2005 “…does not compute with the formula provided by D.H.C.R.” (R 168-198). The increase of which she complained occurred prior to four years before her complaint. The landlord, represented by an attorney, examined the rents and leases for the prior four years, and came to the conclusion that even though the landlord registered the rent properly and it followed the rent guidelines, the apartment was not subject to rent stabilization due to vacancy decontorl(R 165-170). The landlord submitted the leases for the four year period prior to the tenant’s complaint, and demonstrated that the rents were increased at all times pursuant to the rent stabilization guidelines. In fact the landlord did not realize that the rent charged to the tenant was above the vacancy decontrol amount of $2,000 until he was informed by his attorney during the pendency of the D.H.C.R. proceeding and so answered (R 165-209). 5 The Rent Administrator agreed, and not withstanding the Appellate Division decision in Roberts v. Tishman Speyer Properties, L.P., 62 AD3d 71 (2009), ruled that the apartment was no longer subject to rent stabilization (R 56-59). There was no reason for the landlord to be aware that the J-51 was a material fact in determining the rent stabilization status of the apartment, and he did not inform his attorney of that fact. There was a general belief among landlords, which was supported by the writings of D.H.C.R. as outlined in the Roberts decision, that apartments that had a J-51 tax abatement could be luxury destabilized either by vacancy decontrol as in this apartment, or by Order of the agency due to the high income of the tenants. It was clear after the Appellate Division decided that such apartment retains its rent stabilized status; that the decision would be appealed to the Court of Appeals, and in fact it was. Roberts v. Tishman Speyer Properties, L.P., 13 N.Y.3d 270, 890 N.Y.S.2d 388 (2009). The landlord’s answer to the tenant’s initial complaint was filed months before the Court of Appeals decision in Roberts was issued, and claimed that the apartment should have been vacancy decontrolled, and that the landlord should not have filed annual registrations (R 165). (This cannot be part of a “scheme to deregulate”). The appellant submitted a letter dated February 26, 2010 to D.H.C.R. in reply, pointing out that the respondent had a J-51 exemption and was rented to her as a rent stabilized apartment. 6 Part of the letter stated at (R-211): RESPONSE: I submit that regardless of the amount of the lease, Mr. Candee represented the apartment as a rent stabilized property when rented, and has continued to do so throughout the term of the lease. Please find the following attached: 1) ‘Rent Stabilization lease Rider’ provided to me with my original lease and never replaced with any other, 2)a copy of the most recent ‘Annual Apartment registration 2009’, and 3) the most recent rental invoice all of which substantiate that Mr. Candee has always represented this lease to be for a “Rent Stabilized apartment”. Clearly, throughout the relationship Mr. Candee has represented that the $2000, then $2060 are “preferential” rents which only apply to a rent stabilized apartment. If indeed the apartment has been “decontrolled” one would have to consider the continued representation as a stabilized unit in the process of Annual Registration to constitute fraud. The Rent Administrator issued an order denying the rent overcharge complaint on March 12, 2010 (R 98-102). However, on April 15, 2010 the Rent Administrator reopened the case (Docket No. YD-410002-RK issued April 15, 2010) (R-56-59). It determined that the apartment was in fact rent stabilized because the landlord had a J-51 tax abatement pursuant to the Court of Appeals decision in Roberts. The landlord did not object to the reopening of the complaint. The landlord submitted a detailed history of the rent and leases going back to the rent after the IAIs were made to show the complete history of the apartment, and showed that all the rents charged were at the legal regulated rent or below. In addition, the landlord continued to register the apartment with D.H.C.R. on an annual basis even 7 though there was a vacancy and the rent for the current tenant started at an amount of $2,000.00 or higher. Certainly this is not the behavior of a landlord bent on defrauding a tenant. The lease of Leeta Harding, the first tenant after the IAIs, was submitted. She took occupancy by lease effective July 1, 2004 (R 108-119), immediately after the IAIs were completed, at the rate of $1,750.00 per month. However, Harding vacated approximately September 2004. The rent stabilization rider that was part of the lease contained the calculation of the rise in rent to her higher rent as required by D.H.C.R. (R 115). She could have complained to D.H.C.R. of the rent increase because it was within the four year period, but did not. Harding only stayed a short time, and wrote a letter to the landlord explaining that she found another apartment (R 113). The next tenants were Ramos and Teplitskiy, pursuant to a lease effective October 1, 2004 (R 120-129). They were also given a rent rider. The calculations were incorrect because of the intervening tenancy of Harding. The calculation table at (R 125) requests: (A) This apartment was rent stabilized when the last tenant moved out. a. Last Registered Rent and Date. $___1,750.00_______. In this instance the calculation request is confusing because it does not account for the intervening tenant who moved in August 2004 and moved out at 8 the end of September 2004. The landlord set forth the last tenant’s rent in the space, “$1,750.00” when the apartment was in fact registered as $571.70 (R 181). That is not fraud but an incorrect response on a form that contained an ambiguous request. D.H.C.R. acknowledged the ambiguity in its form and corrected the form. The new rent stabilization rider was given to the appellant when she move in. The form states: (A)This apartment was rent stabilized when the last tenant move out: Last Legal Regulated Rent $_____________. (R 149). The landlord responded to the form in the Ramos/Teplitskiy lease rider by setting forth the Legal Regulated Rent of Leeta Harding and would have been correct if the new form had been used. The Commissioner commented on this discrepancy in the Order on the PAR (R-29), explaining in a footnote why “it is of little consequence”. The Legal Regulated Rent for Ramos and Teplitskiy could have been set forth as more than $2,000.00 and the apartment could have been taken out of rent stabilization at that time and given a lower nonstabilized rent. However Ramos and Teplitskiy were given a Rent Stabilization Rider and the apartment was registered at $1,750 (R 181), the lower actual rent and not at the legal registered rent as it would have been if the landlord were scheming to remove the apartment from rent stabilization at the earliest date. 9 Ramos/Teplitskiy could have challenged the increases since their tenancy was within the four year period, but they did not. They did renew their lease twice at the guidelines increases (R 203-207). Likewise when the appellant took occupancy she was given a lease effective March 1, 2007 (R 136-154). The appellant was given a rent stabilized lease with a rent stabilization rider that contained a calculation table (R 149), and in addition another rider that stated in the first paragraph: The landlord and tenant agree to be bound by the determination of N.Y.S. Dept of Housing and Community Renewal (DHCR). At the time that this lease was signed, March 1, 2007, the IAI increase had been completed within the four year period, and the tenant could have challenged those increases at D.H.C.R. The apartment was also registered with D.H.C.R. for the years 2007 and 2008 even though the apartment was registered for $2,000.00 or more (R 156-160). The landlord also submitted the lease of the tenant prior to the IAI, which was effective in 1972. The prior tenant had been in the apartment for thirty-two years (R 104-107). The Rent Administrator issued its “Order Pursuant to Reconsideration” under Docket number YD-410002-RK on October 4, 2010 and held that the apartment remained subject to Rent Stabilization and, as the calculations chart demonstrated, there was no overcharge (R-92-96). 10 APPELLANT’S PETITION FOR ADMINISTRATIVE REVIEW The appellant filed her Petition for Administrative Review on November 23, 2010. The Commissioner denied the tenant’s PAR (R 27-32). He set forth a three part test of factors based on Grimm v D.H.C.R., 15 NY3d 358 (2010). He observed that Grimm held that 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. In addition three additional factors must be met: 1) A combination of circumstances alleged by the tenant that point to other violations of the R.S.L. or R.S.C.; 2) A fraudulent deregulation scheme; and 3) A variance in the registration history from the lease history. (R 31). The Commissioner found nothing in the record that met the first two criteria, although he did discuss the issue of the discrepancy of the calculation table in the Ramos/Teplitskiy lease in detail. The Commissioner found that the discrepancy did not rise to the level of a fraudulent scheme that was found in Grimm or the elaborate deregulation scheme found by the court in Thornton v Baron, 5 NY3d 175 (2005). “What is more, however, is that this was less of a misstatement than a clerical error caused by the owner’s failure to update the Rider form it was using. As noted above, the figure that belonged on the top line of that rent calculation was the last LRR and that is the figure which was in fact on the top line of that calculation.” 11 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. 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. (R 31-32) APPELLANT’S ARTICLE 78 PROCEEDING The appellant filed an article 78 proceeding, which was submitted to the Hon. Barbara Jaffe, J.S.C. (R19-25) The appellant claimed that the Order of the Rent Administrator, affirmed by the Commissioner, was arbitrary and capricious and an abuse of discretion. She claimed that the $2,000 rent that she was charged was more than should have been allowed by the Rent Administrator, and that the Rent Administrator did not use adequate care in evaluating the facts. She claimed that the landlord failed to follow the D.H.C.R. guidelines and procedures (R 20). She claimed that the landlord engaged in a fraudulent deregulation scheme, even though the appellant had admitted that at all times the landlord held out to her that the apartment was subject to rent regulation, and had filed all registrations. 12 She claimed that there was a variance between the lease history and the registration history, based on the erroneous statement of the registered rent that was listed in the calculation table in the Ramos/Tepletskiy rent stabilization rider (R 20). The Commissioner had explained in great detail the problems with the table, and that the landlord listed the correct amount that the previous tenant had paid in the table (R 28-30). She objected to the observation of the Commissioner that it was within the industry practice for a landlord to spend $39,000 on renovations when a prior tenant vacates after residing in the premises for thirty-two years, and that there was no reason to look more closely at renovations that were completed more than four years previously (R 32). The landlord in his answer (R275-305) set forth again his objection to considering the Article 78 proceeding when the PAR was not filed within the thirty-five day period (R 276-279). DECISION OF THE IAS COURT Justice Jaffe held that overcharge claims are subject to a four-year statute of limitations (R 6-11): Where an overcharge complaint alleges fraud, however, the D.H.C.R. must examine the rental history beyond the four year period to determine whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on the base date’(Matter of Grimm, 15 NY3d at 366). Neither an increase in rent nor a mere allegation of fraud alone is sufficient to state a claim of fraud (Id.). 13 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 limitations period, the Deputy commissioner for D.H.C.R.’s Department of Rent Administration rationally distinguished the building owner’s behavior from that of the landlord in Grimm and Thornton v Baron, 5 NY3d 176 (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 Kuttenr, Esq, in Opposition dated Nov. 17, 2011, Exh. A). He also found that the variance in the registered rent reflected in the rent stabilized lease rider for the previous tenants resulted from a clerical error, not fraud, as it was apparent that the owner had completed the rider using an old version of the form.(Id. R 9). Petitioner’s assertions regarding the cost of the repairs provide no basis for disturbing the decision, as the Commissioner evaluated the building owner’s proof in light of his experience and expertise in the field, and I may not substitute my judgment for his. Nor does the Commissioner’s error as to petitioner’s initial rent provide a basis, as it was immaterial to his final determination. Therefore, as the Commissioner made his decision on the basis of the record and the Rent Stabilization Law, it is neither arbitrary nor capricious. 14 THE ORDER OF THE APPELLATE DIVISION The majority at the Appellate Division relied solely on the “bump” in rent that took place before the tenant and two prior tenants had occupied the premises earlier than the four year period. It found that a prior tenant had occupied the premises for 32 years. The rent went from $572 in July 2004 to $1750 in October 2004, and that 90% of the increase reflected individual apartment improvements (IAIs). To justify those improvements the owner would have had to spend $39,000 on those improvements. The letter of complaint from the current tenant alleged that the landlord could not have spent that much for improvements. Certain things were original to the apartment and other items had been updated with low quality fixtures and apartments. She estimated that the appliances cost less than $1,000. Among other things, petitioner stated that the hardwood floors, bathtub, doors, and fixtures are original to the apartment, and that the kitchen had been updated with low quality appliances which she estimated as having ‘very inexpensive Home Depot cabinets,’ slat floors, and a used or recycled sink that did not fit in the cutout in the wall. The owner has never submitted any evidence rebutting petitioner’s claim that the IAIs were minimal and cost far less than claimed. That was the sole factual predicate for the conclusion that the “fraud” that was alleged was sufficient to oblige D.H.C.R. to investigate whether the base date rate was legal and concluded that it was acting arbitrarily and capriciously in 15 failing to meet that obligation. The majority did not refer to any discrepancy in the lease history or other indicia of a fraudulent scheme to deregulate. THE OPINION OF THE DISSENTERS AT THE APPELLATE DIVISION The dissenters would have held that before the D.H.C.R. can look beyond the four year look back period, there must be a colorable claim of fraud, and that meant something more than a mere allegation. It required evidence of a scheme. The petitioner had not met that test. The owner complied with all of the rent registration requirements. The dissenters found that the decision of the D.H.C.R. to look back only four years had a rational basis in the record, and that the conclusory claim that the landlord had raised the rent was insufficient by itself for there to be a colorable claim of fraud. The dissenters found that the majority’s conclusion that petitioner’s complaint triggered an inquiry eviscerated the four year statutory rule whenever a tenant alleges fraud, even without any particularity, a holding that would go beyond the implications of Grimm. The dissenters found that the petitioner had not provided any evidence for her conclusion that the apartment improvements claimed for more than four year previous should have cost no more than $5,000.00. The dissenters analyzed Grimm and found that Grimm required a “colorable” claim of fraud before the rental history outside the four year period could be examined. 16 A colorable claim of fraud requires that the tenant present something more than a mere allegation of fraud. It requires some evidence that the owner engaged in a fraudulent act or scheme more than four years prior to the tenant's filing of the rent overcharge claim, justifying the agency's examination of the entire rent history (Matter of Grimm, 15 N.Y.3d at 367(2010)). The dissenters did not find that a colorable claim of fraud existed and would have limited the D.H.C.R. investigation to the four year period. ANALYSIS AND ARGUMENT POINT I RENT OVERCHARGE CLAIMS ARE SUBJECT TO A FOUR-YEAR STATUTE OF LIMITATIONS ABSENT FACTS THAT SUPPORT AN ALLEGATION OF FRAUD. Rent overcharge claims are subject to a four-year statute of limitations; and examination of an apartment’s rental history beyond the four-year period is precluded. C.P.L.R. § 213-a, Rent stabilization Law § 26-516[a][2]. C.P.L.R. § 213-a states: An action on a residential rent overcharge shall be commenced 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 any overcharge may be based upon an overcharge having occurred more than four years before the action is commenced. This section shall preclude examination of the rental history of the housing accommodation prior to the four-year period immediately preceding the commencement of the action. R.S.L. § 26-516[a][2] states: 17 (2) Except as provided under clauses (i) and (ii) of this paragraph, 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. (i) No penalty of three times the overcharge may be based upon an overcharge having occurred more than two years before the complaint is filed or upon an overcharge which occurred prior to April first, nineteen hundred eighty-four. (ii) Any complaint based upon overcharges occurring prior to the date of filing of the initial rent registration as provided in section 26-517 of this chapter shall be filed within ninety days of the mailing of notice to the tenant of such registration. 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. R.S.C. 2520.6 states in relevant part: (e) Legal regulated rent. The rent charged on the base date set forth in subdivision (f) of this section, plus any subsequent lawful increases and adjustments. (f) Base date. For the purpose of proceedings pursuant to sections 2522.3 and 2526.1 of this Title, base dates shall mean the date which is the most recent of: (1) the date four years prior to the date of the filing of such appeal or complaint; R.S.C. § 2523.7 (b) states in relevant part: (b) An owner shall maintain records relating to rents of housing accommodations for four years prior to the date the most recent registration for such accommodation was required to have been filed. An owner shall not be required to produce any rent records in connection with proceedings under sections 2522.3 and 2526.1 of this Title relating to a period that is prior to the base date. 18 R.S.C. § 2526.1(2)(ii) states in relevant part: (ii) the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint pursuant to this section, and section 2522.3 of this Title, shall not be examined. This subparagraph shall preclude examination of a rent registration for any year commencing prior to the base date, as defined in section 2520.6(f) of this Title, whether filed before or after such base date. The purpose behind this Legislative enactment was to alleviate the burden on honest landlords of retaining rent records ad infinitum, not to immunize dishonest ones from compliance with the law. Thornton v. Baron, 5 N.Y.3d 175, 181 (2005); Matter of Gilman, 99 N.Y. 2d at 149 (2002). See also Grimm, supra at 366, where the court further stated, “…that where the overcharge complaint alleges fraud, as here, D.H.C.R. has an obligation to ascertain whether the rent on the base date is a lawful rent.” Grimm then defined the specific nature of the allegation of fraud that was necessary for D.H.C.R. to examine the legitimacy of the base date rent: DHCR also argues that, under the Appellate Division's holding, any "bump" in an apartment's rent—even those authorized without prior DHCR approval, such as rent increases upon installation of improvements to an apartment (see Rent Stabilization Law § 26-511 [c] [13])—will establish a colorable claim of fraud requiring DHCR investigation. Again, we disagree. 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 fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization. As in Thornton, the rental history may be examined for the limited purpose of determining whether a fraudulent scheme to destabilize the 19 apartment tainted the reliability of the rent on the base date. (Id at 367.) In the instant case there was a “bump” in the rent, but just as clearly there was no evidence of a landlord’s fraudulent deregulation scheme. Here the first tenant (Harding) who took occupancy at $1,750.00 per month after the bump in the rent was given a rent stabilization rider complete with a calculations chart (R 108-119). She did not complain to D.H.C.R. The second co- tenants, Ramos and Tepletskiy, were given a lease for the same amount of rent, $1,750.00, even though the landlord could have raised the legal registered rent to an amount over $2,000 per month (R.S.C. § 2522.8), for a vacancy destabilized apartment and then rented the apartment at a free market rent at the same $1,750 with the apartment destabilized. The landlord did not do so. The landlord’s actions did not evince an intent to destabilize the apartment. Likewise, when the landlord gave a lease to the appellant, he included a rent stabilization rider with a calculation table (R 149). In fact the appellant admitted as much in a letter dated February 26, 2010 to D.H.C.R. pointing out that the respondent had a J-51 exemption and essentially requesting that the matter be reopened. Part of the letter stated: (R-211): RESPONSE: I submit that regardless of the amount of the lease, Mr. Candee represented the apartment as a rent stabilized property when rented, and has continued to do so throughout the term of the lease. Please find the following attached: 1) “Rent Stabilization lease Rider’ provided to me with my original lease 20 and never replaced with any other, 2) a copy of the most recent ‘Annual Apartment registration 2009’, and 3) the most recent rental invoice all of which substantiate that Mr. Candee has always represented this lease to be for a “Rent Stabilized apartment”. Clearly, throughout the relationship Mr. Candee has represented that the $2000, then $2060 are “preferential” rents which only apply to a rent stabilized apartment. If indeed the apartment has been “decontrolled” one would have to consider the continued representation as a stabilized unit in the process of Annual Registration to constitute fraud. She also could have filed a complaint at the time she moved in and the Rent Administrator would have been compelled to examine the IAIs since they were completed within the four year period . R.S.C. § 2423.7 (b). There should be a difference between an overcharge complaint within the four year period, and an overcharge complaint that complains of events beyond the four year period. The tenant could have initiated an “overcharge” complaint from the time that she took occupancy on March 1, 2007 until the base date had passed on July 1, 2004 (the date the first tenant after the IAIs had taken place), and pursuant to the D.H.C.R. procedures the rent administrator would have required the landlord to justify all the rent increases in the last four years. The landlord would have had to produce invoices and cancelled checks for all the appliances, and if they had been low cost appliances the invoice would provide the cost, and the rent would be restricted to one fortieth of the cost. Likewise if the cabinets came from Home Depot the invoice would state the cost and the landlord would have to back up the expenditure with cancelled checks. Likewise the invoices of the contractor 21 who installed the items and installed the floors etc. would have to be produced. If the invoice described a new floor that was installed and the tenant, upon being sent the invoice, stated that the floor was the original floor, then D.H.C.R. could adjudicate the issue and decide whether or not to grant an increase for a new floor. The tenant did not initiate the overcharge complaint until after she had been residing in the apartment for approximately two years and the four year statute of limitations period had passed. According to Grimm D.H.C.R. requires additional elements to the jump in rent in order to initiate an investigation that goes beyond the four year period. D.H.C.R. characterized the elements as follows in its order denying the tenant’s PAR: 1) A combination of circumstances alleged by the tenant that point to other violations of the R.S.L. or R.S.C.; 2) A fraudulent deregulation scheme; and 3) A variance in the registration history from the lease history. A fraudulent deregulation scheme is the overarching concept in Grimm. It would require that the landlord not only raise the rent but be able to deregulate the premises or bring it close to deregulation. Scheme connotes that the actions of the landlord have that intent. The landlord did not have that intent and in fact registered the apartment with D.H.C.R. when the previous tenant, and the current tenant took possession even though he did not have to, because she took the apartment at a rental of $2000 22 or more. Moreover he obtained a J-51 tax abatement and an apartment with a J-51 tax abatement cannot destabilize the rent during the life of the J-51 and as long thereafter as the tenant remains in occupancy. In Grimm the Court considered the following factors: a. The tenants immediately before petitioner paid significantly more than the previous registered rent. b. Those tenants were informed that their rent would be higher but for their performance of upgrades and improvements at their own expense. c. Almost simultaneously the owner ceased filing annual registration statements as required by R.S.C. § 2528 (a). d. Years later the owner filed retroactive registrations after receiving an overcharge complaint. e. The initial lease did not contain a rent stabilization rider. (Grimm, 15 NY3d at 366). The Court concluded: The combination of these factors should have led DHCR to investigate the legality of the base date rent, rather than blindly using the rent charged on the date four years prior to the filing of the rent overcharge claim. 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 23 ascertain the reliability and the legality of the rent charged on that date. 1 (Id at 366-367). In the instant case, the only factor that is present in that a previous tenant before petitioner paid significantly more than the previous registered rent. None of the other factors exist. Moreover, she and all previous tenants were properly registered with D.H.C.R. even though the current tenant’s rent exceeded the $2,000 threshold. Thus there is no “combination” of factors. Therefore D.H.C.R.’s determination was rational as a matter of law and not arbitrary and capricious. In Thornton the factors included an illusory prime tenant, an in terrorism provision of the lease and a collusive declaratory judgment suit that was a fraud on the court. Thornton, 5 NY3d at 178. None of those factors exist in this case. Thornton, in fact, is a different case entirely, since it does not depend upon apartment improvements for the jump in rent. The tenant leans on various claimed irregularities in the landlord’s submissions; but those claimed irregularities do not measure up to the standard of a “fraudulent scheme to deregulate” the apartment. 1 The commissioner did examine its own records beyond the four year period and use its expertise rationally when it concluded its Order Denying the Tenant’s PAR by stating that “…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.” 24 The tenant claims that the short stay of the tenant Leeta Harding is evidence of “fraud” although it is not uncommon for a tenant to move in and change her mind. The landlord submitted a letter of explanation from the tenant (R-113). The tenant points to a misreporting of the previous legal regulated rent on a calculations page of the D.H.C.R. rent rider in the Ramos/Teplitskey lease. However, D.H.C.R. used its expertise in rationally determining in the Order Denying the tenant’s PAR that the rider was outdated and that the misstatement is caused by a clerical error (R-31). The rent in that lease was the same rent that the previous tenant was paying. There is no evidence of an alleged rush to deregulate as described in Pehrson v D.H.C.R., 34 Misc.3d 1120 (A) (NY Sup., 2011) after placing the rent close to the $2,000.00 necessary for deregulation. The tenant claims that the lease provision that the tenant takes the apartment “as is” is evidence of fraud after substantial renovations. However, that provision is not unusual in a lease. The tenant claims that the calculations of rent to prior tenant were unreliable. However, the rent charged in 2005-2006 differs from the Legal regulated rent allowed by D.H.C.R. (R-59,181). However, the difference is $13.12. That amount is not indicative of a fraudulent scheme to deregulate but of the landlord having trouble with fifth grade arithmetic. When the appellant submitted her complaint to D.H.C.R., the Rent Administrator held that the apartment was not subject to regulation, because it was 25 vacancy destabilized (R-92-96); however a month later the Rent Administrator reversed itself and reopened the matter (R 103) due to the Roberts decision. The Rent Administrator then found that the apartment was subject to rent stabilization, as the respondent had stated, but that 1) there was no overcharge within the four-year period, 2) no reason to examine the rent history beyond the four year period (R 92-96), and 3) the tenant was paying less than the rent plus allowable increases (R 96, Note 2). The tenant has cited in her brief before the Appellate Division Bogatin v Windermere Owners LLC, 98 AD3d 896 (2012) for the proposition that the tenant had produced evidence of a wrongful increase in rent. However, in that case it was not clear that the landlord had taken the apartment out of rent stabilization. A reading of the IAS Court’s Decision and Order (Hon. Eileen A. Rakower, J.S.C.) entered September 8, 2011, in Bogatin v Windermere Owners LLC, Index No. 103489/11, reveals that it was taken out of rent stabilization. In the instant case the landlord filed rent registration statements for her and her predecessor even though their rent could have gone over the $2,000 threshold. The appellant also cited 72 A Realty Assoc. v Lucas, 101 AD3d 401 (2012) for the proposition that the D.H.C.R. should examine the rent history prior to the four year period including the bump in rent prior to the four year period. However, in that case the increase in rent also took the apartment out of rent stabilization 72 A Realty Assoc. v Lucas, 28 Misc.2d 585 (2010, Wendt) mod 32 Misc.3d 47 (App. T. 1st Dep’t, 26 2011), mod, 101 AD3d 401 (App. Div., 1st Dep’t, 2012). Here the landlord did not take the apartment out of rent stabilization; and no scheme can be implied. Whereas the court ruled that the D.H.C.R. should examine the rent history in Lucas, there is no rationale to look beyond the four year statute in this case. The landlord continued to provide rent stabilization riders to tenants including the appellant, when he was not required to, in contrast to Thornton v Baron and Levinson v 390 West End Assoc. LLC 22 AD3d 797 (1st Dep’t, 2005) wherein the landlord inserted in terrorim clauses into the leases that were designed to deter the tenants from applying to D.H.C.R. The court must decide whether a overcharge complaint that results from occurrence older than four years should be investigated as a fraudulent scheme merely because a tenant can point to an old bathtub or a cheap cabinet as evidence of the landlord’s failure to make improvements. There must be a qualitative difference in the factors and evidence. Moreover in the instant case there was no effort to destabilize the apartment and therefore there is no reason to burden the landlord with having to keep or provide records older than four years from the date of the complaint. To do so would eviscerate the four year statute. 27 POINT II THE COURT ERRED IN ADDING UPTOWN REALTY, ROBERT CANDEE AND ADDING “A/K/A UPTOWN REALTY” TO THE NAME OF THE DEEDHOLDER AS PARTIES RESPONDENT TO THE ARTICLE 78, AND THOSE ENTITIES SHOULD BE REMOVED AS RESPONDENTS. The appellant filed an order to show cause on September 29, 2011 (which is not in the record), moving for a stay of proceedings in the housing court. The appellant also moved to add Uptown Realty and Robert Candee Owner to the caption as party respondents. The original respondents were the deed holder to the subject premises, 232/242 Realty LLC. The other respondents were not on the Original Order denying the complaint (R 285-287), the Order Pursuant to Reconsideration (R68) or the Order Denying the PAR, (which states “Owner: 232/242 Realty Co., LLC.”). (R 56). The respondent objected that the other entities were not parties to the proceeding (R 276). The deed holder was open and notorious, and the appellant has remedies against the new owner as successor in interest in the event the building was sold. R.S.C. 2526.1(e) and (f)(2)(i). The respondent has not come forward with any specific facts suggesting that there is a real danger that landlord may ultimately be unable to satisfy a final judgment against it in this action. Levenson v 390 W. End Assoc. LLC., supra. Nevertheless the court granted the request of the appellant in the Decision and Judgment filed on November 25, 2011 (R 13-16). The other private 28 respondents should be stricken from the caption and from any liability. Rutherford v Bee Bee Excelsior Management Inc., 300 AD2d 34 (2002). CONCLUSION Based on the facts and the law, the court should reverse the decision of the Appellate Division, First, and find that the appellant’s overcharge claims are subject to the four-year statute of limitations; and further hold that the appellant’s PAR should have been dismissed because it was not filed timely within the thirty- five day period; and further hold that only “232/242 Realty Co. LLC” should have been named as respondent. Respectfully Submitted, Rappaport, Hertz, Cherson & Rosenthal, P.C. By: David I. Paul, Esq. Jeffrey M. Steinitz, Esq. Attorneys for Private Respondents