In the Matter of Brookford, LLC, Appellant,v.New York State Division of Housing and Community Renewal, et al., Respondents.BriefN.Y.May 2, 2018Homes and Community Renewal ANDREW M. CUOMO RUTHANNE VISNAUSKAS Governor Commissioner/CEO March 21, 2017 Mr. John P. Asiello Chief Clerk and Legal Counsel To the Court State of New York Court of Appeals 20 Eagle Street Albany, NY 12207-1095 Re: Matter of Brookford, LLC v . NYS DHCR; APL-2016 - 0211 Dear Mr. Asiello, By order dated Novembe r 1, 2016, the Appellate Division, First Department, certified to this Court the question: "Was the order of the Supreme Court, as affirmed by this Court, properly made?u Respondent New York State Di vision of Housing and Community Renewal ("DHCRu) submits this letter brief pursuant to the Court of Appeals' d irection that this appeal proceed pursuant to Rule 500.11. PRELIMINARY STATEMENT This is an appeal by Brookford, LLC ("Owneru or "Appellantu ) from an Order of the Appellate Division, First Department entered on August 4, 2016. The Order of the Appellate Division affirmed the Decision of the Supreme Court, New York County (Lobis , J.) which denied the Appellant's application to deregulate a rent controlled apartment and dismissed the Appellant's Article 78 proceeding. The Rent Regulation Reform Act of 1993 ("RRRA-93"), Chap. 253, § 5, L. 1993, provides for the deregulation of certain housing accommodations exempting them from the jurisdiction of the Rent Stabilization Law ("RSL") and the Rent Control Law ("RCL") . 1 RCL §26-403.1(b) permits the owner of each housing accommodation for which the monthly rent exceeds the threshold of $2,000.00 on or before May of each calendar year the owne r my serve the tenant with an income certification form ("ICF"). The tenant shall identify all persons that occupy the housing accommodation as their primary residence and state whether the total annual income is in excess of the deregulation income of $175,000.00. 2 RCL §26-403.1(a) defines total annual income: .shall mean the federal adjusted gross income as reported on the New York state income tax return. Total annual income means the sum of the annual incomes of all persons who occupy the housing accommodation as their primary residence other than on a temporary basis . (emphasis added). 1 Administrative Code of the City of New York, §§ 26-403.1, 26.504 .1 through 26- 504.3; 65 Mck. Unconsol. Laws, vol. 8601-8700. 2 RCL §26-403.1(a)2 states that the deregulation income means total annual income equal or greater than $175,000 in each of the two preceding calendar years. RCL §26-403 . 1(a)3 provides that the deregulation rent threshold means $2,000 . 00 for proceedings commenced before July 1, 2011. 2 Tax Law §171 - b(3) (b) provides that the Department of Taxation and Finance: when requested by the division of housing and community renewal, shall verify the total annual income of all persons residing in housing accommodations as their primary residence subject to rent regulation. (emphasis added) . Subsection (3) of Tax Law §171-b was added by Rent Regulation Reform Act of 1993 ("RRRA-93") which also authorized and directed the Commissioner of the Department of Finance("DTF") to enter into an agreement with the Commissioner of the DHCR to verify the income of tenants residing in housing accommodations subject to rent regulation. See; 1993 N.Y. ALS 253. The Memorandum of Understanding ("MOU") between DTF and DHCR dated November 1, 1994 provides the procedures to verify the "total annual income" of the occupants of regulated housing accommodation as set forth by RRRA-93. The MOU provides a methodology to segregate income reported on a joint return in high income deregulation proceedings and provides for DTF inter alia to design forms including a worksheet for tenant(s) to segregate income reported on a joint return. (R. 402) . 3 Margaret Friedman ("Tenant") on the Answer to Petition and Notice to Tenant to Provide Information for Verification of Income ("ICF") form indicated that her husband's income which was included on their joint tax return should not be included in 3 References to the record on appeal are denoted as (R.OO). 3 the calculation of the total annual income because he did not reside in the apartment as he moved to an assisted living facility where he died before the ICF was served. The Tenant supplied a percentage of the income listed on the joint tax return for each of calendar years that should be included as her income as directed by the instructions on the form. (R.429-434). The Appellate Division, First Department properly affirmed the order of the Supreme Court and found as the Tenant was the sole occupant of the rent controlled housing accommodation, DHCR's determination as to the apportionment of Tenant 's income was rationally based upon the information submitted by the Tenant for DTF to verify her income as sole occupant pursuant RRRA-93, RCL §26 - 403.1 and the pro cedures outlined in the 1994 Memorandum of Understanding between DTF and DHCR. ARGUMENT POINT I THE RENT REGULATION REFORM ACT OF 1993 DEFINES TOTAL ANNUAL INCOME AS THE ANNUAL INCOMES OF ALL PERSONS WHO OCCUPY THE HOUSING ACCOMMODATION AS THEIR PRIMARY RESIDENCE. The Rent Regulation Reform Act of 1993 ("RRRA-93") (L 1993, ch 253) provides for the d e regulation of housing accommodations subject to Rent Control Law when the monthly rent excee ds $2,000 4 and when the "total annual income" of the 4 $2 ,500 for proceedings commenced after July 1, 2011. 4 occupants of the housing accommodation exceeds $175,ooos in each of the two immediate preceding years. RCL §26-403.1(a) provides that the statutory definition of total annual income is "the sum of the annual incomes of all persons who occupy the housing accommodation as their primary residence." Only the total annual income of occupant(s) of a housing accommodation may be taken into account when determining whether an apartment can be deregulated. See; RCL 26-403.1(a) (1); 315 East 72nd St. Owners, Inc. v. N.Y.S. Div. of Hous. & Comm. Renewal, 101 A.D.3d 647, 958 N.Y.S.2d 39 (pt Dept. 2012); 103 East 86 th St. Realty Corp. v. N.Y.S. Div. of Hous. & Comm. Renewal, 12 A.D. 3d 289; 785 N.Y.S.2d 65 (1st Dept. 2004); A.J. Clarke Real Estate Corp v. N.Y.S Div. of Hous. and Comm. Renewal, 307 A.D.2d 841, 763 N.Y.S.2d 577 (1st Dept. 2003). Allocating the income reported on the Tenant's and her husband, Si Friedman's joint New York State tax return was in accord with RRRA-93, RCL §26 - 403.1(a) and Tax Law §171-b(3) (b) as Si Friedman had moved to an assisted living facility in March 2005 and died there on November 3, 2006, and was not an occupant of the rent controlled housing accommodat ion on the day the ICF was served. 5 $200,000 for proceedings commenced after July 1, 2011. 5 The Owner argues that the language of RCL 26-403.1(a) (1) and the legislative history provide that no apportionment of income is permitted but fails to provide any support for its argument other than stating that treasury regulat i ons establish that "although there are two taxpayers on a joint return, there is only one taxable income" citing to Treasury Regulation §1.613 -4(b). While the Owner cites and argues that Treasury Regulations provide that income on a Federal joint tax return is not divisible, the Owner fails to provide any authority that precludes separation of joint income reported on a New York State tax return for the purposes of determining total annual income of all persons who reside in the housing accommodation as their primary residence pursuant to RRRA- 93 and RCL §26-403.1. The Owner claims that the statute did not contemplate the possibility of an income tax return that includes the income of a non-occupant but fails to point to any language in 1993 N.Y. ALS 253 or in RCL §26 - 403.1(a) and Tax Law §171-b(3) (b) that total income is defined as any amount other than "the annual incomes of all the persons who occupy the housing accommodation as their primary residence other than on a temporary basis." The Owner claims that a tenant cannot obtain the benefits of filing joint tax return because the statute requires DTF to examine federal adjusted gross income as reported. However, even 6 absent direction in RRRA-93, New York Tax Law6 provides for separation of income for filing a New York Tax Return when a Federal joint tax return is filed including the MOU between DTF and DHCR which sets forth the methodology for determining "total annual income" when a tenant has filed a joint tax return. The express provisions of RRRA-93 that only the income of occupant(s) that reside in the housing accommodation as their primary residence was made part of the Memorandum of Understanding between DTF and DHCR by -providing for the allocation of income when one of the spouses does not live in the rent regulated housing accommodation . The MOU provides: "Worksheet for Allocating Federal Adjusted Gross Income." This form will be used when one or more residents of the rent regul ated housing accommodations files a joint New York State Personal income tax return with a spouse who does not live in the rent regulated housing accommodation, but with whom a joint income tax return was filed for one or both of the tax years involved. This form will be used by such individuals to segregate the items of federal adjusted 6 Tax Law §651(b) (2) provides: If the federal income tax liabilities of husband and wife . . are determined on a joint federal return, they shall file a joint New York income tax return, and their tax liabilities shall be joint and several except as provided in paragraph six of this subsection, section six hundred fifty-four and subsection (e) of section six hundred eighty-five. (emphasis added). Tax Law §171 Powers and Duties of commissioner of taxation and finance provides : Eighteenth-c .... have the authority to require a husband and wife whose federal income tax liabilities are determined on a joint federal return and who have not filed a joint New York income tax return to file separate income tax returns, in which case their tax liabilities shall be separate. (emphasis added) . 7 gross income of the nonresident spouse so those amounts will not be included in the income determination. The term "nonresident" in the preceding sentence means not residing in the rent- regulated housing accommodation as a primary residence and does not mean the term defined in section 605(a) (2) of the Tax Law. (emphasis added). (R. 402). The Tenant stated on the Income Certification Form ("ICF") designed by DTF pursuant to the MOU that she and her husband, Si Friedman filed 2004 and 2005 joint N.Y.S. Income Tax Returns which are the relevant tax years in this proceeding. The Tenant further stated that because Si Friedman was in an assisted living facility and was not an occupant of the subject apartment his income should not be included in the total household income. (R.434). The pre-printed form Answer to Petition and Notice to Provide Information for Verification of Household Income at "Item 7 (Allocation)" stated: In some cases, the income of certain spouses is not included in determining "total annual income." In order to insure that the income of such spouses is not included in the total annual income, the Worksheet for Allocating Federal Adjusted Gross Income (Form RA- 93AI) should be completed . (R.430). Item 7a states: For either of the two proceeding calendar years, did a tenant or an occupant identified in Part A file a joint New York State income tax return with someone whose income you believe should not be included in the calculation of total annual income in Item 4? (R.434). 8 Items 7b and 7c require the tenant to state the name of the person and the basis for not including the person's income in the total annual income. The tenant must then enter the allocation percentage for each of the two preceding calendar years of the spouse whose income should be included in the calculation of "total annual income." (R.434). The Tenant indicated on line 7d. of the ICF an allocation percentage for each of the two preceding calendar years for the spouse whose income, her income, that should be included in the calculation of "total income" was 34.32% for 2004 and 30.52% for 2005. (R. 434). The Supreme court found that it was not arbitrary or capricious for DHCR to provide Department of Taxation and Finance ("DTF") with the percentage of the Tenant's annual income provided by the Tenant from the joint tax return because Rent Control Law §26-403.1 and the RRRA - 93 clearly expresses that only the annual income of the occupant(s) of the premises at the time the ICF is served may be counted for deregulation purposes and the Tenant was the sole occupant on the date the ICF was served. Similarly, the methodology utilized by the Tenant which was authorized and directed by the Memorandum of Understanding was utilized in 103 East 86th St. Realty Corp. v. N.Y.S. Div. of Hous. & Comm. Renewal, 12 A.D. 3d 289; 785 N.Y.S.2d 65 (1 5 t Dept. 9 2004) because the husband like Si Friedman, here had vacated the subject housing accommodation prior to the service of the ICF. The First Department in 103 East 86 th St. affirmed the Supreme court's finding that only the income of the occupant and her children may be counted as the husband had permanently vacated the rent regulated housing accommodation before the ICF was served. The separation of Federal Joint Income reported on a New York State tax return pursuant to RRRA-93 is not unprecedented. In Brady v. State, 172 A.D.2d 17, 576 N.Y.S.2d 896 (3 rct Dept. 1991) the Third Department found that husband and wife may elect to file separate New York State income tax returns even if they filed a joint Federal tax return if one of the spouses is a New York resident and the other is a non-resident . The Owner argues that tenants who live in rent regulated housing accommodations may not file joint income tax returns, enjoy tax saving while maintaining two separate primary residences. This Court in Glenbriar v. Lipsman, 5 N.Y.3d 388, 804 N.Y.S.2d 719 (2005) found that husband and wife can maintain separate primary residences and file federal joint tax returns even if one spouse maintains a New York City rent regulated apartment and the other spouse maintains a Florida residence and claims a Florida homestead exemption. 10 The Owner alleges that DHCR made its "apportionment" determination without any input from DTF and usurped DTF's statutory role in the income verification process. Nonetheless, it was after DTF verified that the Tenant's annual income was below the statutory threshold by applying the percentages submitted by the Tenant that DHCR sought to verify the income allocation by requesting an IRS transcript from the Tenant of the Tenant's reported income. The statute specifically provides that both the owner and tenant shall have thirty days to comment on the DTF's verification results, recognizing there may be issues such as occupancy which may not be answered through the income verification process. RCL §26-403.1(c) (2). This comment period was specifically cited by this Court in Classic Realty LLC v. N.Y. State Div. of Hous. and Comm. Renewal, 2 N.Y.3d 1442, 777 N.Y.S.2d 1 (2004) as part of the deregulation procedure. The Owner claims the First Department incorrectly distinguished Ansonia v. Unwin, 130 A.D.3d 453, 13 N.Y.S.3d 67 (1st Dept. 2015) from the case here. In Ansonia the First Department found that the owner had established a prima facie showing that the apartment was not the Ansonia tenant's primary residence because the Ansonia tenant deducted her entire rent stabilized rent on an S Corporation tax filing. S Corporation filings disallow the deduction of rent "for a dwelling unit 11 occupied by any shareholder for personal use." The First Department held that the tenant may not claim it is her primary residence because it is "logically incompatible" with the position taken on her tax return. Here, the Tenant is not taking a contrary position to that taken on her tax return but following the directions on the form designed by DTF for the purpose of determining her income as the sole occupant of the rent regulated housing accommodation. The Supreme Court found that it was not irrational for DHCR to request additional information to confirm the Tenant's allocation percentage indicated on her ICF that DHCR submitted to DTF rather than to blindly accept the Tenant's apportionment. Under well settled principles of administrative law the court's function is accomplished upon finding a rational basis. Matter of Pell v. Board of Educ ., 34 N.Y.2d 222, 356 N.Y.S.2d 833 (1974). The First Department found that DHCR determination as to the apportionment of income had a rational basis as the Tenant was the sole occupant of the apartment and pursuant to RRRA-93 and RCL §26-403.1(a), the definition of total annual income means the sum of the annual incomes of all persons who occupy the housing accommodation as their primary residence. 12 POINT II THE RENT REGULATION REFORM ACT OF 1993 AUTHORIZED AND DIRECTED DTF AND DHCR TO ENTER INTO AN AGREEMENT TO VERIFY INCOME OF TENANTS SUBJECT TO RENT REGULATION. Chapter 253 of the laws of 1993 ("RRRA-93) provides for the Tax Commissioner to enter into an agreement with the Division of Housing and Community Renewal to verify income of tenants residing in housing accommodations subject to rent regulation. It further directed the Department of Finance ("DTF") to adopt rules, regulations and to design the forms to effect the "rent regulation reform act of 1993." Section 10 of the chapter added a new subdivision 3 to Tax law 171-b which provided: (3) (A) The commissioner is authorized and directed to enter into an agreement with the Commissioner of the Division of Housing and Community Renewal to verify the income of tenants residing in housing accommodations subject to rent regulations. The Department shall adopt rules and regulations to effect the provision of this subdivision. The Laws 1993, ch253 eff July 7, 1993 Section 1. This act shall be known and may be cited as the "rent regulation reform act of 1993" and Section 28 provided for any form necessary for the implementation of this act, or any section of this act, was authorized and directed to be made and completed with 180 days after the date on which this act becomes law. The agreement or MOU between DTF and DHCR pursuant to Tax Law 171 - b(3) (a) to verify income of rent regulated tenants is 13 not unusual. The legislature has authorized MOUs for income verification between DTF and other New York State agencies including Tax Law 171-a(3) (a) which provides for an agreement between DTF and the Office of Temporary Disability Assistance; Tax Law 1 71 - d an agreement with DTF and New York State Higher Education Services; Tax Law 171-j an agreement with DTF and the State Insurance Fund; Tax Law 171-e an agreement with DTF and the City and State University of New York. DHCR provided both the Owner and the Tenant a copy of the MOU dated November 1, 1994 between DTF and DHCR pursuant to RRRA-93 (R.393 at ~40). The Owner did not submit a response concerning the MOU. The MOU was also referenced in DHCR's PAR Order: After the passage of the deregulation law, DHCR and the New York State Division of Taxation and Finance (DTF) (unequivocally the expert agency on taxation) entered into a memorandum of understanding (MOU) governing the interface between the two state agencies required by the law. It specifically called for the apportionment and review of the actual income of the tenant actually in occupancy in instances just like this analyzing whether deregulation is appropriate. (R. 47) . Now, in this appeal the Owner for the first time challenges the validity of the apportionment language in the MOU between DTF and DHCR. This Court has repeatedly held that issues not raised before DHCR may not be raised for the first time on appeal. See; Peckham v. Calogero, 12 N.Y.3d 424; 883 N.Y.S.2d 14 751 (2 00 9); Gilman v. N.Y. Div. of Hous. and Comm. Renewal, 99 N.Y.2d 144, 753 N.Y.S.2d 1 (2002). The legislature by enacting new subdivision 3 to Tax law 171 - b authorized and directed the Department of Finance to enter into an agreement with the Commissioner of the Division of Housing and Community Renewal to verify the income of tenants residing in housing accommodations subject to rent regulations and directed and authorized the Department of Finance to adopt. rules and regulations to effect the provision of this subdivision. Moreover, the MOU was enacted over 22 years ago and the time to challenge the validity of the MOU has long since expired. Even more fundamentally the Owner claims that MOU contains provisions that contradict the statute but fails to provide specifics as to which statute the MOU violates. See; Samuelsen v. N.Y. City Transit Authority, 101 A.D.3d 357, 957 N.Y.S.2d 27 (pt Dept. 2012) (the statute prohibited the consolidation established in the MOU) . When interpreting a statute, a court should attempt to effectuate the intent of the legislature. Doctors Council v . New York City Employees' Retirement System, 71 N.Y . 2d 669, 529 N.Y.S.2d 732 (1988). The legislature in enacting RRRA- 93 clearly defined "total annual income" as "the sum of the annual incomes of all persons who occupy the housing accommodation as their primary residence." 15 It has been repeatedly found that legislature intended that only the income of those persons residing in the premises as their primary residence on the date that ICF is served should be included in the determination of the total annual income of the occupants of a rent regulate d apartment for deregulation. 315 East 72nd St. Owners, Inc. v. N. Y.S. Div. of Hous. & Comm. Renewal, 101 A.D.3d 647, 958 N.Y.S.2d 39 (1st Dept. 2012); Doyle v. Calogero, 52 A.D.3d 252; 859 N.Y.S.2d 178 (1st Dept. 2008); A.J. Clarke Real Estate Corp v. N.Y . S Div. of Hous. and Comm. Renewal, 307 A.D.2d 841 , 763 N.Y.S.2d 577 (1st Dept. 2003). This Court should affirm the First Department's findings that the Supreme court correctly concluded that DHCR was not arbitrary or irrational when the Tenant's income was apportioned on a joint tax return for purposes of determining "total income" of the sole occupant of the housing accommodation in accord with RRRA-93 and RCL §26-403.1. 16 CONCLUSION WHEREFORE, for all the forgoing reasons, this Court should affirm the decision and order of the First Department entered on August 4, 2016 and this appeal should be dismissed in its entirety. Dated: New York, New York March 21, 2017 Mark F. Palomino Counsel New York State Division of Housing and Community Renewal 25 Beaver Street New York, NY 10004 (212) 480-7441 Email: cc: Jeffrey Turkel, Rosenberg & Estis, P.C. Daphna Zekaria, Sokolski & Zekaria, P.C Niles c. Welikson, Horing Welkson & Rosen P.C. 17 C E R T I F I C A T I 0 N The foregoing brief was prepared on a computer. A monospaced typeface was used, as follows: Name of typeface : Courier New Point size: 12 Line Spacing: Double The total number of words in the letter brief, inclusive of point headings and footnotes is 3,674. Dated: March 21, 2017 I v AFFIDAVIT OF SERVICE STATE OF NEW YORK, COUNTY OF NEW YORK ss.: I, Diane M. Black, being duly sworn, depose and say that: ( 1) I am not a party to the proceeding/action, am over 18 years of age, and am employed by the New York State Division of Housing and Community Renewal, 25 Beaver Street, 71h Floor, New York, New York I 0004 and, (2) On March 21, 2017, I served 2 copies of the within LETTER BRIEF to each person(s) and/or firm(s) listed below at the last known address indicated: Rosenberg & Estis, P.C. 733 Third Ave. New York, NY 10017-3204 Attn: Jeffrey Turkel, Esq. (212) 867-6000 Horing, Welikson & Rosen, P.C. II Hillside Ave. Williston Park, NY 11596 Attn: Niles C. Wclikson, Esq. (516) 535-1700 Sokoloski & Zekaria, P.C. 305 Broadway, Suite 1004 New York, NY 10007-3620 Attn: Daphna Zekaria, Esq. (212) 571-4090 [] by regular first-class mai I by depositing a true copy thereof enclosed in a post-paid properly addressed wrapper in an official depository under the exclusive care and custody of the United States Postal Service within New York State. [X] by overnight mail by depositing a true copy thereof enclosed in a properly addressed wrapper, into the exclusive care and custody of UNITED PARCEL SERVICE for overnight delivery with appropriate provision for payment of the carrier's fee, prior to the latest time designated by that carrier for overnight delivery. Sworn to before me this 2JS1 day of March 2017 ~~c t~'t Notary Public r···. ·- ·-~··-·---- S~C.fONQ ~8{}' Pubh~~_~e .t New Yorlc alified m ~-~ Cbmm.i . Na. 01KlM0743! I~ S
