In the Matter of Brookford, LLC, Appellant,v.New York State Division of Housing and Community Renewal, et al., Respondents.BriefN.Y.May 2, 2018To be Argued by: ROBERT E. SOKOLSKI, ESQ. (Time Requested: 10 Mins) APL-2016-00211 New York County Clerk’s Index No.: 100065/15 Court of Appeals of the State of New York In The Matter of the Application of BROOKFORD, LLC, Petitioner-Appellant, For a Judgment Pursuant to Article 78 of the Civil Practice Law and Rules, -against- NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL and MARGARET SCHUETTE FRIEDMAN, Respondents-Respondents BRIEF FOR RESPONDENT-RESPONDENT MARGARET SCHUETTE FRIEDMAN LAW OFFICES OF SOKOLSKI & ZEKARIA, P.C. Attorneys for Respondent-Respondent Margaret Sehuette Friedman 305 Broadway - Suite 1004 New York, New York 10007 (212)571-4080 PRINTED ON RECYCLED PARER TABLE OF CONTENTS TABLE OF AUTHORITIES...... QUESTIONS PRESENTED PRELIMINARY STATEMENT STATEMENT OF THE FACTS ARGUMENT . ii 1 2 7 13 DHCR PROPERLY APPLIED THE LUXURY DECONTROL PROVISIONS I. 13 II. DHCR HAD THE AUTHORITY AND RESPONSIBILITY TO EXCLUDE THE INCOME OF THE TENANT’S NON-RESIDENT HUSBAND IN ACCORDANCE WITH THE ALLOCATION OF INCOME PROVIDED BY THE TENANT. 18 CONCLUSION .24 i TABLE OF AUTHORITIES State Cases: 65 Central Park West, Inc. v. Greenwald, 127 Misc,2d 547, 486 N.Y.S.2d 668 (Civ.Ct. N.Y. Co. 1985) 15 315 East 72nd Street Owners, Inc. v. DHCR. 101 A.D.3d 647, 958 N.Y.S.2d 39 (1st Dept. 2012) 14 A.J. Clarke Real Estate Corp. v. DHCR, 307 A.D.2d 841, 763 N.Y.S.2d 577 (1st Dept. 2003) 13 Ansonia Assoc. Ltd. Partnership v. Unwin, 130 A.D.3d453 (2015) 22 Chatsworth Realty Corp. v. DHCR, 56 A.D.3d 371, 869 N.Y.S.2d 18 (1st Dept. 2008) 14 Doyle v. Calogero, 52 A.D.3d 252, 859 N.Y.S.2d 178 (1st Dept, 2008) 14 LMJ Venture No. I v. Joy, 105 Misc.2d 291, 432 N.Y.S.2d 58 (N.Y. Co. 1980) 15 Matter of Yonkers Gardens Co. v. DHCR, 51 N.Y.2d 966, 435 N.Y.S.2d 706, 416 N.E.2d 1041 [1980] .3 Peckham v. Calogero, 12 N.Y.3d 424, 911 N.E.2d 813 (2009) .2 Pell v. Bd. of Education, 34 N.Y.2d 222, 356 N.Y.S.2d 833 (1979) 16 Power v. DHCR, 61 A.D.3d 544, 878 N.Y.S.2d 682 (1st Dept. 2009) 14 Purdy v. Kreisberg, 41 N.Y.2d 354, 418 N.Y.S.2d 329 (1974). 16,21 ii St. Realty Corp. v. DHCR, 12 A.D.3d 289, 785 N.Y.S.2d 65 (1st Dept. 2004) 13 State Statutes: Tax Law §171-b (3) Tax Law §171-b (3) (a). Tax Law §171-b(3)(b) .. 19 26 26 State Regulations: 9 NYCRR §2211.1(b) 9NYCRR §2211.5 19 25 iii QUESTION PRESENTED Whether it was arbitrary and capricious for DHCR to exclude a tenant’sQ: husband’s income in a High Income/High Rent Deregulation proceeding, where it is undisputed that the tenant’s husband permanently vacated the subject premises more than one year prior to the landlord’s service of an Income Certification Form? A: The Courts below correctly answered “No”. Q: Whether the methodology agreed to and employed by DHCR and DTF to allocate income on a joint tax return, for purposes of determining whether the “total annual income of all persons residing in housing accommodations as their primary residence” exceeds the threshold for luxury deregulation, is lawful and rational? A: The Courts below correctly answered “Yes”. i PRELIMINARY STATEMENT This brief respectfully opposes the appeal by Petitioner-Appellant Brookford, LLC (“Petitioner” or “Appellant”) from the August 4, 2016 Decision and Order of the Supreme Court, Appellate Division, First Department, unanimously affirming the Decision/Order of the Supreme Court, Nassau County (Lobis. J) dated and entered September 29, 2015 (R. 6-15), which rejected Petitioner’s Article 78 proceeding and affirmed the November 19, 2014 Order issued by respondent New York State Division of Housing and Community Renewal (“DHCR”) that affirmed a prior DHCR order denying petitioner’s application to deregulate the subject rent controlled apartment based on high income. As noted before the Appellate Division, the federal tax arguments originally presented by Carol M. Lutatti, Esq., a tax attorney, were never presented by Petitioner at any time during the initial DHCR proceeding, the prior Article 78 proceeding, the Appellate Division appeal or the remanded proceeding at DHCR. Even if Ms. Lutatti’s arguments had merit, which they do not, Petitioner clearly waived them by failing to raise them below, and the presentation of these arguments for the first time in Petitioner’s Article 78 proceeding is patently improper. Peckham v. Calogero, 12 N.Y.3d 424, 430, 911 N.E.2d 813 (2009)(“In addition, petitioner challenges DHCR's lack of a specific definition for the term ‘Demolition.’ This argument was not raised 2 before the Rent Administrator or at petitioner's PAR. It was raised for the first time in the article 78 proceeding. As it is well settled that an argument “may not be raised for the first time before the courts in an article 78 proceeding” {Matter of Yonkers Gardens Co. v. State ofN.Y. Div. ofHous. & Community Renewal, 51 N.Y.2d 966, 967, 435 N.Y.S.2d 706, 416 N.E.2d 1041 [1980] ), this argument is not properly before us.”) In fact, Appellant’s March 20, 2007 response shows Appellant’s agreement to apportionment of income, but demands that DHCR “must request that the tenant furnish DHCR with proof that her earnings were limited to these percentages . . ..” (R. 80) Petitioner’s entire objection below was made upon its patently frivolous claim that Mr. Friedman had not permanently vacated the subject premises long before the ICF was served, when he clearly did. While Petitioner did raise an argument about joint taxation, the Appellate Division, First Department has made clear (in cases cited below) that for purposes of luxuiy deregulation, the income of a spouse who does not reside in the apartment as a primary residence on the ICF service date is not to be considered. The arguments presented by Ms. Lutatti are also erroneous. First, as noted in our March 21, 2014 submission to DHCR, the IRS defines income as: Gross income. Gross income is all income you receive in the form of money, goods, property, and services that is not exempt from tax. If you 3 are married and live with your spouse in a community property state, half of any income defined by state law as community income may be considered yours. See, excerpts (pages 1-8) of IRS Publication 501 (R. 459). New York is not a community property state. Id., at 7 (listing states other than New York that are community property states). Therefore, the gross income of a married person in New York is “all income [that a married person] receive[s] in the form of money, goods, property, and services that is not exempt from tax”, and no part of the spouse’s income. Finally, adjusted gross income is defined as; “gross income minus adjustments to income.” See, http:< Yvww.irs.gov/uac/Dcfinition-of-Adiusted-Cjross-income. Clearly, there is no such thing as community income in New York State. Moreover, contrary/ to Petitioner’s unsupported claims, income, as expressly defined by the IRS means “all income you receive” - thus gross income is only defined by receipt. The recipient of income shown on IRS tax forms does clearly show the owner of the income, for tax reporting purposes - the only purposes that would necessarily come before this Court had Petitioner properly raised this argument before DHCR, which it did not. It bears emphasis that luxury deregulation is based upon income tax returns as reported by the tenant/occupant taxpayer to the New York State Division of Taxation and Finance. Again, the recipient of the income is the owner of the income 4 for tax reporting purposes, according to the IRS. Moreover, while our Legislature used the obvious label of “federal adjusted gross income” as a demonstration of a primary resident’s annual income, there is no express provision applying the entire body of federal tax law into this tiny facet of rent regulated housing in New York, nor can one be implied. To the contrary, the Legislature qualified the label “federal adjusted gross income” to mean “as reported on the New York state income tax return”, not a federal income tax return. Appellant’s arguments as to how federal law treats joint tax returns completely misses the point - this case is not about federal tax law, or the treatment of joint tax returns for purposes of determining joint federal tax liability or tax deductions. The 1993 RRRA’s sole reference to federal tax is a label that points to a number, adjusted gross income. Notably, federal law does not contain a hint as to how to treat “federal adjusted gross income” on a joint tax return for purposes of luxury deregulation of a housing accommodation in New York City. Appellant would have this court believe that income reported on a joint tax return magically becomes “joint and several income”, when no provision of federal law permits this conclusion. That conclusion would clearly conflict with the IRS definition of income. That a joint tax return may create joint and several liability for the resulting tax bill under federal law does not change the recipient or owner of the income 5 streams reported. Even more demonstrable of its lack of credibility is Petitioner’s repeated claim that DHCR “required” or “demanded” confidential tax information from Respondent Margaret Schuette Friedman. Aside from the obvious issues of Petitioner’s lack of standing to challenge such an alleged “requirement” or “demand" and its prior waiver of such challenge by its silence, all of the confidential tax information, backup and tax transcript were voluntarily provided to DHCR by our client and we have made this clear throughout each and every step in this proceeding. The confidential backup documentation presented to DHCR was intentionally and voluntarily submitted so that DHCR could verify the recipient/owner of each item of income for tax reporting purposes. Our client still has no objection to any Court’s in camera review of this information. However, as the information is confidential, and Appellant has no right to such disclosure, our client respectfully declined consent for provision of this information to Appellant. For the reasons set forth herein, the Decision and Order of the Supreme Court, Appellate Division, First Department entered on August 4, 2016 and the Decision, Order and Judgment of the Supreme Court, New York County (Lobis, J.) entered September 17, 2015 must be affirmed, and the Petitioner’s requested relief denied in its entirety. 6 STATEMENT OF THE FACTS Si Friedman began his statutory tenancy of the rent controlled apartment at -New York, New York (“subject premises”) in 1955. For twenty-one (21) years of his residence at the rent controlled subject premises, from 1984 to 2005, his wife, Ms. Friedman co-resided there with him. Mr. Friedman never returned to the subject premises after March 21, 2005, when he permanently relocated to the Castle Senior Living Center. He was placed on hospice care on March 1, 2006 and passed away on November 3, 2006. (R. 70-71, 93-94) Ms. Friedman, the successor rent controlled tenant, has continued to reside at the subject premises since she commenced occupancy in 1984. Id. Petitioner submitted to DHCR a Petition for High Income Rent Deregulation of the subject premises dated June 28, 2006, which identified both Mr. Friedman and Ms. Friedman as the “tenants named on the lease or otherwise occupying the housing accommodations,” although Mr. Friedman had vacated the premises and relocated to Castle Senior Living Center more than fifteen (15) months earlier. (R. 51-55) Ms. Friedman submitted an answer to Petitioner’s deregulation petition dated January 25, 2007. Ms. Friedman’s answer set forth that Mr. Friedman had permanently vacated the subject premises on March 21, 2005, that he passed away on November 3, 2006, and that at the time of the service of the 1CF form in April, 2006, 7 Ms. Friedman was the sole occupant of the subject premises. (R. 61-67) Although not disputing that Mr. Friedman left the subject apartment in March, 2005 and never returned, Petitioner submitted a response to Ms. Friedman’s answer on March 20, 2007, arguing that Mr. Friedman had not permanently vacated the subject premises by the time of the April, 2006 service of the ICF. Although lacking any evidence in support of its position, Petitioner speculated that perhaps Mr. Friedman had still intended to eventually return to the subject premises, and had therefore not permanently vacated and should have his income included in determining household income for the purposes of the deregulation. (R. 77-81) Although Ms. Friedman had already included with her original answer to the deregulation petition a written certification from the Castle Senior Living facility that Mr. Friedman had relocated there on March 21, 2005 as well as a copy of his November 3, 2006 death certificate, Ms. Friedman filed with DHCR a response to Petitioner’s response dated July 30, 2007 replete with medical documentation proving that, upon his admission to the Castle Senior Living facility in March, 2005, he unquestionably lacked the ability or intent to ever return to the subject premises, and had therefore permanently vacated. (R. 88-105) These medical documents included, inter alia, documentation of his progressively worsening front-temporal lobar dementia, his deteriorating physical condition which included an inability to 8 swallow and tendency to collapse onto the floor, the determination that he was in need of constant monitoring and supervision in all of his regular activities of daily living (“ADLs”), and his referral to and placement on hospice care in February, 2006, where he remained until his death. This submission also included an affidavit from Mr. Friedman’s attending physician, Dr. Andrew Lyons, M.D., confirming that his admission to the facility had always been intended to be permanent, and that his health condition had been progressively debilitating and terminal. (R. 88-105) Simultaneously with the aforementioned submission, Ms. Friedman also made a voluntary and confidential submission to DHCR of the unredacted income tax returns that she had filed jointly with her husband for 2004 and 2005, along with a breakdown that enabled DHCR to separate out for income verification purposes the portion of the couple’s jointly reported income that had been Ms. Friedman’s and the portion of income earned by her husband. The income tax returns and income breakdown were not provided to Petitioner because a landlord in a high-income deregulation proceeding is never permitted to see a tenant’s specific income amounts, but rather DHCR privately confirms with the Department of Taxation and Finance (“DTP”), and DTF reports back, whether the annual adjusted gross income is over or under $175,000.00. (R 135-38) Petitioner, however, was specifically made aware that the confidential 9 submission was being made to DHCR and what was included in that confidential submission. (R. 94) Petitioner produced no evidence at all to dispute Ms. Friedman’s overwhelming evidence that proved that Mr. Friedman permanently vacated the subject premises on March 21, 2005, some thirteen (13) months before service of the 1CF. Despite the confidentiality of Ms. Friedman’s aforementioned confidential submission and the illegality of anyone outside DHCR viewing the confidential income information contained therein, Petitioner nonetheless managed to obtain a copy of at least the affidavit and affirmation portion of the confidential submission by way of a Freedom of Information Law (“FOIL”) request. The Respondent’s submission included the following supporting documents: a. Mr. Friedman and Ms. Friedman’s 2004 joint federal and New York income tax returns; b. Ms. Friedman’s 2004 W-2 and 1099 forms, and Mr. Friedman’s 1099 forms for 2004 and 2004 documentation of Mr. Friedman’s income from the rental of real property, so as to confirm what portion of the couple’s joint 2004 income was generated by Ms. Friedman and what portion by Mr. Friedman:, 10 c. Mr. Friedman and Ms. Friedman’s 2005 joint federal and New York income tax returns; d. Ms. Friedman’s 2005 W-2 and 1099 forms, and Mr. Friedman’s 1099 forms for 2005, so as to confirm what portion of the couple’s joint 2005 income was generated by Ms. Friedman and what portion by Mr. Friedman; DHCR then issued a Notice of Verification of Income Tax information dated October 23, 2007 confirming that 2004 and 2005 incomes of the person(s) occupying the subject premises on relevant date were under $175,000.00. (R. 106) Accordingly, the DHCR Rent Administrator issued an Order Denying Petition for High Income Rent Deregulation dated December 5, 2007. (R. 107) Appellant then filed with DHCR a Petition for Administrative Review (“PAR”) challenging the aforementioned order denying its deregulation petition. The DHCR Deputy Commission subsequently issued an order denying Petitioner’s PAR. (R. 108) Petitioner then commenced an Article 78 proceeding against DHCR. (R. 16-380) By so-ordered stipulation dated July 22, 2008, Ms. Friedman intervened as a Respondent in the proceeding. By Decision/Order dated March 10, 2009 and entered April 13, 2009, the Supreme Court, New York County (Tolub, J.) upheld DHCR’s determination and dismissed Petitioner’s Article 78 proceeding. (R. 167-76) Petitioner appealed to the Appellate Division and DHCR moved to remand to correct a discrepancy in the original determination, which appeared to state that both Mr. and Mrs. Friedman’s income fell below the then $175,000.00 threshold, when in reality, the Rent Administrator apparently presented DTF with the percentages of income allocated by Respondent and had them apply these proper allocations to the total income reported by Mr. and Mrs. Friedman. (R. 177-96) Ms. Friedman objected, because she knew that a remand would provide Petitioner another opportunity to continue the then seven (7) year attempt to deregulate her apartment and evict her, another Article 78 proceeding and at least another appeal to the Appellate Division, First Department, which has, and continues, to cost Ms. Friedman many thousands of dollars to defend. More importantly, the remand would accomplish nothing, because Ms. Friedman properly allocated her portion of income for the two years under consideration and her own income was nowhere near the then $175,000.00 per year threshold. A remand would not change this unassailable fact. Upon remand, DHCR asked for comments on the allocation and release of the confidential backup information to the Petitioner. (R. 199) Ms. Friedman responded and declined to permit disclosure, reminding DHCR that such disclosure 12 was forbidden by both state and federal laws. (R. 234-39) DHCR did not blindly accept Ms. Friedman’s sworn statements, or the backup documents submitted. Instead, on remand, DHCR requested that Ms. Friedman provide an IRS tax transcript for the year 2005. After significant delay by the IRS in responding to her request for the transcript, Ms. Friedman finally received the IRS 2005 Wage and Income Transcript and voluntarily submitted the additional documentation to DHCR, so DHCR could again verify the figures. DHCR properly denied deregulation of the subject premises. ARGUMENT I. DHCR PROPERLY APPLIED THE LUXURY DECONTROL PROVISIONS. The question is not “whether” allocation of the tenant’s income is “permissible”, because the income allocation is required by law. Only the income for tenants and occupants who occupy the subject premises as a primary residence other than on a temporary basis on the ICF service date are to be considered in a high-rent, high-income deregulation. The Appellate Division has repeatedly held that the income of spouses and family members who vacated the housing accommodation prior to the ICF service date may not be included in the ‘household' income verification. A.J. Clarke Real Estate Corp. v. DHCR, 307 A.D.2d 841, 763 N.Y.S.2d 577 (1st Dept. 2003); see also, 103 East 86th St. Realty Corp. v. DHCR, 13 12 A.D.3d 289, 785 N.Y.S.2d 65 (1st Dept. 2004)(income of husband who left prior to service of ICF properly excluded from consideration by DHCR); 315 East 72nd Street Owners, Inc. v. DHCR, 101 A.D.3d 647, 958 N.Y.S.2d 39 (1st Dept. 2012)(income of daughter, who temporarily occupied apartment in the two look-back years, but vacated prior to service of the ICF form, “should not have been considered in the calculation of Drosnes' total household income [citation omitted].”); Chatsworth Realty Corp. v. DHCR, 56 A.D.3d 371, 869 N.Y.S.2d 18 (1st Dept. 2008). Moreover, whether the rule helps or hurts the tenant (i.e., where a new occupant is present on the ICF service date, but did not occupy the apartment during part or all of the two year look-back period, their income is still considered), the Court has strictly adhered to the rule. Doyle v. Calogero, 52 A.D.3d 252, 859 N.Y.S.2d 178 (1st Dept, 2008)(“That the application of this rule here will pennit consideration of a new occupant's income as part of rent destabilization proceedings is not a basis for us to revisit the issue.”); Power v. DHCR, 61 A.D.3d 544, 544-45, 878 N.Y.S.2d 682 (1st Dept. 2009)(“Furthermore, in Doyle, this Court held that in determining household income for purposes of luxury deregulation, DHCR may rationally take into consideration the income of occupants who reside in the apartment on the date the income certification form (ICF) is served, even if the 14 occupant did not occupy the apartment during the two years preceding service thereof.”) The issue of how to allocate the tenant’s income (where, as here, the tenant permanently vacated the apartment prior to the ICF date, and his spouse succeeded to the apartment as the tenant of record), is relatively easy. Rent Stabilization Law §26-504.3 clearly states that; "annual income shall mean the federal adjusted gross income as reported on the New York state income tax return.” This definition accords with New York State’s income tax returns, which have always required and/or calculated the taxpayers “Federal adjusted gross income”, defined above. There is no dispute that the ICF was served upon the Tenant on April 27, 2006, and that Mr. Friedman had permanently vacated the subject premises on March 21, 2005, more than a year prior to service of the ICF. In cases where a rent regulated tenant has relocated to a nursing home or medical facility, the determination of whether the tenant has permanently vacated the apartment and abandoned it as his primary resident must be based on an analysis of the tenant’s intent and medical ability to return to the apartment, which depends heavily upon the medical likelihood of the tenant being able to return. See, e.g., 65 Central Park West, Inc. v. Greenwald, 127 Misc.2d 547, 486 N.Y.S.2d 668 (Civ.Ct. N.Y. Co. 1985); LMJ Venture No. I v. Joy, 105 Misc.2d 291, 432 N.Y.S.2d 58 (N.Y. Co. 1980) 15 DHCR correctly excluded Mr. Friedman’s income from the total annual income for 2004 and 2005, as the facts in the agency’s record overwhelmingly and indisputably established that Mr. Friedman had permanently vacated the subject premises, and was therefore no longer a primary resident thereof, long before service of the ICF on April 27, 2006. Petitioner produced no evidence to contradict this finding. It is axiomatic that a court may not disturb an agency’s determination on Article 78 review so long as there is substantial evidence to support it, and the agency’s determination must be upheld so long as it is neither irrational nor arbitrary and capricious. Pell v. Bd. of Education, 34 N.Y.2d 222, 230-231, 356 N.Y.S.2d 833 (1979); Purdy v. Kreisberg, 47 N.Y.2d 354, 354, 418 N.Y.S.2d 329 (1974). Here, there is no legal dispute that the required procedure for income verification in connection with luxury decontrol petitions is to verily the income for the previous two (2) years of all persons occupying the apartment as their primary residence on the ICF service date. The facts and the record clearly demonstrate that (i) that Ms. Friedman was the only occupant of the subject premises on the April 27, 2006 ICF service date (ii) that, correctly, only her income was included in the income computation, and (iii) that her annual income was under $175,000.00 for 2004 and/or 2005. Accordingly, the only appropriate course of action is to reject Petitioner’s 16 appeal. It was abundantly clear from all documentation that it was Ms. Friedman’s income, to the exclusion of Mr. Friedman’s, that was under $175,000.00 for those two calendar years, and that high income deregulation was denied on that basis. Further, while DHCR also argued for remand on the basis that Ms. Friedman’s income was purportedly calculated by DHCR as 32% of the couple’s total income for the relevant years, instead of the 34% reported by Ms. Friedman,1 this purported ‘‘error” by DHCR was wholly irrelevant. Specifically, the couple’s total income was $205,185 for 2004 and $232,844 for 2005 and, accordingly, either a 32% or 34% of both those totals amount to well under half the $175,000.00 threshold for both 2004 and 2005. The determination by DHCR was rationally based upon the substantial information and documentation provided by the parties. It is abundantly clear that the correct outcome was reached— the evidence in the record clearly supports the determination that Ms. Friedman was the only occupant of the subject premises on the ICF service date, that only Ms. Friedman’s income was verified for the preceding two (2) years, and that Ms. Friedman’s annual income was under $175,000.00 for one or 1 As noted by Ms. Friedman in her prior submission, she erred on the side of caution and imputed to herself a few items of income that she could not definitively prove belonged only to her late husband. Thus DHCR’s more accurate calculations 17 both of those years. Any other finding would violate the deregulation statute and the well-settled precedent of the Appellate Division, First Department. II. DHCR HAD THE AUTHORITY AND RESPONSIBILITY TO EXCLUDE THE INCOME OF THE TENANT’S NON-RESIDENT HUSBAND IN ACCORDANCE WITH THE ALLOCATION OF INCOME PROVIDED BY THE TENANT. As noted in DHCR’s brief, the Tenant, not DHCR, apportioned the income between herself and Mr. Friedman in response to the petition filed by the Appellant, and she also voluntarily provided the back-up documents to prove that her apportionment was accurate. Ms. Schuette Friedman also voluntarily provided a copy of a tax transcript requested by DHCR. Thus, the issue of whether DHCR has the authority to direct a tenant’s production of such documents for determination of a high income/high rent deregulation proceeding is not properly before the Court, because Ms. Schuette Friedman did so voluntarily, in an effort to avoid a ten (10) year litigation over the Petitioner’s deregulation proceeding. Good deeds never go unpunished. Petitioner and amici below attempted to cherry pick words from the 1993 Rent Regulation Reform Act (“1993 RRRA”) to redefine “annual income”, and impose its own self-serving definition that forces the inclusion of a non-resident spouse’s income for consideration in a high rent/high income deregulation proceeding, despite actually resulted in a lower percentage (32%) of allocation than she reported (34%). 18 the fact that the words of the Act make clear that only the income of those persons who reside in the apartment as a primary basis on a non-temporary basis may be considered for deregulation purposes. Petitioner’s tortured reading flies in the face of both the plain language and the legislative intent of the luxury deregulation provisions of the 1993 RRRA, as well as the clear and well-settled First Department precedent, which requires the exclusion of those persons who permanently vacated the apartment before the IGF was served. Here, the Respondent’s husband vacated the subject premises more than one (1) year prior to the service of the ICF, and it is undisputed that his vacatur was permanent. In fact, Mr. Friedman was permanently placed in hospice care before the ICF was served. A determination of luxury deregulation is made based upon the "‘sum of the annual incomes of all persons who occupy the housing accommodation as their primary residence other than on a temporary basis . ...” 9 NYCRR §2211.1(b). There is a express and definitive primary residence requirement for a person’s income to included and considered in a luxury deregulation proceeding. As noted by DHCR, the 1993 RRRA permitted and directed DHCR and DTF to enter into an inter-agency agreement in order to effectuate the determination of high rent/high income deregulation proceedings. Tax Law §171-b (3) plainly states: (3)(a) The commissioner is authorized and directed to enter into an agreement with the commissioner of the division of housing and 19 community renewal to verify the income of tenants residing in housing accommodations subject to rent regulation. The department shall adopt rules and regulations to effect the provisions of this subdivision. (b) The department, 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 and shall notify the commissioner of the division of housing and community renewal as may be appropriate whether the total annual income exceeds the applicable deregulation income threshold in each of the two preceding calendar years [emphasis added]. No other information regarding the annual income of such persons shall be provided. The very provision of law that directs DTF to respond to DHCR and verify whether the total annual income exceeds the applicable deregulation income threshold in each of the two preceding calendar years makes clear that DTF may only “verify the total annual income of all persons residing in housing accommodations as their primary residence [emphasis added]". In other words, the very tax law that supplies the authority and responsibility of DTF to verify annual incomes for DHCR makes clear that DTF may not include or verify as part of the “total annual income” any income by any person who does not reside in the housing accommodation as their primary residence. Any argument by Petitioner that it does flies in the face of the DTF enabling statute. Pursuant to the 1993 RRRA, DHCR and DTF entered into the 1994 Memorandum of Understanding which, at Part I (B)(4) clearly spells out the 20 procedures and worksheet to be used by a tenant who filed a joint New York State income tax return with a spouse who does not live in the housing accommodation at issue. (R. 402) The forms designed by DTP and DHCR for the tenant to apportion income are clearly authorized and required by §28 of the Laws of 1993, Ch. 253, which state: “[a]ny rule or regulation or form necessary for the implementation of this act, or any section of this act, is authorized and directed to be made and completed within 180 days after the date on which this act becomes law.” Id. The apportionment forms and procedures are a rational, if not necessary, method to adhere to the letter and intent of the luxury deregulation provisions of the 1993 RRRA. This Court should strongly reject Petitioner’s strained, if not frivolous, arguments that attack not only the plain wording and intent of the high rent/high income deregulation procedures in the 1993 RRRA, but also well-settled precedent, all of which clearly prohibit consideration of a non-resident spouse’s annual income for purposes of high rent/high income deregulation. First, there is no evidence at all that our Legislature intended to import the entire body of federal tax law into our state regulated housing law. None at all. The only reference to any federal tax item is a single repeated reference to the label “federal adjusted gross income”, with the qualifier that that number be considered “as reported” on a New York State income tax return, not a federal one. Below Petitioner 21 argued otherwise. Petitioner argued, erroneously, that “Ansonia [Ansonia Assoc. Ltd. Partnership v. Unwin, 130 A.D.3d 453 (2015)] holds that principles relating to federal and New York State tax law can and shall be imported into rent regulatory law.”) Now, at least half of Petitioner’s instant brief argues that the Legislature intended a quick and easy method to determine luxury deregulation petitions. In support of its attempt to include the non-resident’s income as part of the “total annual income of all persons residing in housing accommodations as their primary residence”, Petitioner now claims that the Legislature did not consider a primary7 residence requirement. But Appellant’s claim that the legislative history says nothing about the “primary residence provision”, is simply false, as is Petitioner’s unsupported statement that primary residence “was not of paramount importance to the Legislature”. Petitioner’s Brief, at 41. To the contrary, the legislature considered primary residence as part of the very definition of a “high income household” subject to deregulation. See also, NYS Assembly Debate Transcripts, 1993 Chapter 253, Mr. Lasher, at 197 (Respondent’s Compendium, at 2) (“In addition to that $2,000 figure, the earnings of a person or household living in that apartment has to be at least the sum of a quarter of a million dollars, $250,000 [emphasis added].”) The New York State Senate Introducer’s Memorandum in Support states, as 22 follows: The bill also provides for a second decontrol mechanism. Under the bill if the legal rent charged as of October 1, 1993 is equal to or greater than $2,000 and the apartment is occupied by a high-income household, the apartment may be deregulated prior to vacancy in accordance with the verification and deregulation procedures prescribed in this bill [emphasis added]. For purposes of this bill, a high income household is defined as one where the total federal adjusted gross income of all occupants residing in the apartment as their primary residence,on other than a temporary basis, is in excess of $250,000 in each of the two preceding years [emphasis added]. Chapter 253 Laws of 1993, New York State Senate Introducer’s Memorandum in Support, Senate Bill #S.6198, Assembly Bill #A.8859, at 2 (Respondent’s Compendium, at 4). Senator Hannon also made clear that: If the legal rent charged as of October 1st, ’93 is equal to or greater than $2,000 per month and the apartment is occupied by a high income household, the apartment may be deregulated prior to vacancy in accordance with the verification and deregulation procedures set forth in the bill. For purposes of this mechanism, a high income household is defined as one where the total federal adjusted gross income of all the occupants residing in the apartment as their primary residence is in excess of $250,000 in each of the two preceding years [emphasis added].”) Senate Debate Transcripts, 1993 Chapter 253, Senator Hannon, at 8188-89 (Respondent’ Compendium, at 1 1-12). For Petitioner to claim that primary residence “was not of paramount importance to the Legislature” or, worse, that “the legislative history' says nothing 23 about it”, is simply fallacious.2 The Legislature clearly included the primary residence requirement in the very definition of the high-income households that the high-rent/high income deregulation provisions were aimed at. CONCLUSION All of the high-rent/high-income luxury deregulation provisions embodied in the Rent Stabilization Law, the Rent and Eviction Regulation and Tax Law make one thing clear - that the annual incomes of all persons residing in a housing accommodation as a primary residence other than on a temporary basis will be added up to determine whether such total annual income exceeds the deregulation threshold. Not once does the law provide that the annual income of a person who did not reside as a primary resident in the housing accommodation on the date an ICF is served may be considered. Treatment of joint returns under federal law for tax liability or tax deduction purposes, or for any other purposes, is simply irrelevant to the issues involved in luxury deregulation proceedings, and the primary residence requirement for inclusion of a person’s annual income make that perfectly clear. The unsupported and erroneous claims by Petitioner as to legislative intent demonstrate why New York law has always forbidden litigants from raising new arguments for the first time in an Article 78 proceeding, or on appeal. Had our firm not already had the legislative history for the 1993 Rent Regulation Reform Act from another case involving another client, we would have been hard pressed to 2-i If luxury deregulation were based upon federal tax liability, rather than income, Appellant might have a point, because federal law does treat both parties on a joint tax return as jointly and severally liable for the resulting tax bill. However, federal law does not change the recipient/owner of income based upon the filing of a joint tax filing. A spouse cannot claim that half, much less all, of the income reported in a joint tax return is theirs, just because it was reported in their joint tax return. Where a joint income tax return has been filed and one person on the return did not primarily reside in a housing accommodation on the date the landlord serves an ICF, then DTF "cannot ascertain whether the threshold has been met” because it would have to include the income of non-primary residents in violation of the provisions of luxury deregulation and the very definition of “total annual income”. In such case, DHCR “may issue an order denying the OPD, or request additional information.” 9 NYCRR §2211.5. Here, DHCR requested additional information so that it could apportion the income properly. DHCR’s solution is the rational method, if not the only method, to comply with the letter and spirit of high-rent/high-income luxury deregulation legislation. Contraiy to Petitioner’s unsupported statement, it does not require any “expertise” to read the name of the recipient/owner of income on tax backup documents or a federal tax transcript, and add up the annual income for obtain copies of these documents in time to respond to Petitioner’s Brief. 25 each person named on each form, or, as DHCR did here, use those totals to generate a tenant’s percentage of the total income reported in a joint return, then provide that percentage to DTF for a “yes” or “no” answer on whether the deregulation threshold has been reached. Notably, the Legislature left it to DHCR and DTF to proscribe the rules and regulations to properly request and determine whether the total annual income of a household exceeds the deregulation threshold. Tax Law §171-b (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 regulation. The department shall adopt rules and regulations to effect the provisions of this subdivision.”) DHCR and DTF did just that, and agreed to allocate income properly. Notably, one might argue that DTF has no authority at all to verify the annual income of anyone who does not live in the housing accommodation as their primary residence, especially when considering Tax Law §171-b(3)(b) (“The department, 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 and shall notify the commissioner of the division of housing and community renewal as may be appropriate whether the total 26 annual income exceeds the applicable deregulation income threshold in each of the two preceding calendar years [emphasis added].”) In that case, DHCR could simply and summarily deny deregulation. The procedure lawfully enacted by DHCR and duly provided to the tenant in the form of an allocation worksheet is the only method that preserves the word and spirit of the luxury deregulation provisions of the 1993 RRRA with a fair and efficient methodology that does not penalize the tenant or the landlord, and effectuates a proper and accurate determination. For all of the foregoing reasons, and the reasons provided by Respondent DHCR, the order appealed from should be affirmed in all respects. Respectfully submitted,Dated: September 6, 2017 New York, New York SOKOLSKI & ZEKARIA, P.C. Attorneys for Respondent-Respondent Margaret Schuette Friedman BY: ROBERT E. SOKOLSKI, ESQ. 305 Broadway - Suite 1004 New York, New York 10007 (212)571-4080 27 Printing Specifications Statement I, ROBERT E. SOKOLSKI, ESQ., member of the firm SOKOLSKI & ZEKARIA, P.C., attorneys for the Respondent-Respondent do hereby certify, as follows: 1. the within brief was generated on a computer; 2. the margins are (1) inch on all sides; 3. the type face is Times New Roman, 14 point; 4. the line spacing is double space; 5. the word count (including cover, contents and authorities) is 6572 words. Dated: September 6, 2017 New York, New York ROBERT E. SOKOLSKI, ESQ. 28