In the Matter of Brookford, LLC, Appellant,v.New York State Division of Housing and Community Renewal, et al., Respondents.BriefN.Y.May 2, 2018APL-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 DEVELOPMENT and MARGARET SCHUETTE FRIEDMAN, Respondents-Respondents. BRIEF FOR AMICI CURIAE RENT STABILIZATION ASSOCIATION OF N.Y.C., INC. (“RSA”) AND COMMUNITY HOUSING IMPROVEMENT PROGRAM (“CHIP”) HORING WELIKSON & ROSEN, P.C. Attorneys for Amici Curiae Rent Stabilization Association of N.Y.C., Inc. (“RSA”) and Community Housing Improvement Program (“CHIP”) 11 Hillside Avenue Williston Park, New York 11596 Tel.: (516) 535-1700 Fax: (516) 535-1701 Dated: December 29, 2016 i TABLE OF CONTENTS PRELIMINARY STATEMENT ............................................................................... 1 INTEREST OF AMICI RSA/CHIP ........................................................................... 5 QUESTION PRESENTED ........................................................................................ 6 ARGUMENT ............................................................................................................. 7 POINT I ...................................................................................................................... 7 DHCR EXCEEDED ITS AUTHORITY IN VIOLATING ITS OWN RULES IN ORDER TO FIND THE INCOME OF AN INDIVIDUAL WHO FILED A JOINT TAX RETURN WAS INSUFFICIENT FOR LUXURY DEREGULATION PURPOSES ................................................................................................................ 7 POINT II .................................................................................................................. 13 ADHERENCE TO STATUTORY LANGUAGE IS NOT ONLY REQUIRED BUT RESULTS IN FAIR AND EQUITABLE TREATMENT TO ALL WHO ARE AFFECTED BY THE STATUTE’S MANDATE ......................................... 13 POINT III ................................................................................................................. 20 DHCR’S FAILURE TO ABIDE BY ESTABLISHED PROCEDURE WHEREBY INCOME AS SET FORTH IN A TENANT’S TAX RETURN AS VERIFIED BY THE DEPARTMENT OF TAXATION AND FINANCE IS THE SOLE BASIS FOR DETERMINATION OF A LUXURY DEREGULATION APPLICATION WAS ARBITRARY, CAPRICIOUS AND ERRONEOUS AS A MATTER OF LAW .............................................................................................. 20 CONCLUSION ........................................................................................................ 22 ii TABLE OF AUTHORITIES Cases Finger Lakes Racing Assn. v. New York State Racing and Wagering Bd., 45 N.Y.2d 471, 480, 410 N.Y.S.2d 268 (1978) .................................................... 10 Gilman v. New York State Division of Housing and Community Renewal, 99 N.Y.2d 144, 151, 753 N.Y.S.2d 1 (2002) ......................................................7, 8 Matter of 85 E. Parkway Corp. v. New York State Div. of Hous. and Community Renewal, 297 A.D.2d 675, 676, 747 N.Y.S.2d 115 (2d Dep’t 2002) ............... 9-10 Matter of Ansonia Assoc. L.P. v. Unwin, 130 A.D.3d 453 (1st Dept. 2015) ..... 15-16 Matter of Campagna v. Shaffer, 73 N.Y.2d 237, 243, 538 N.Y.S.2d 933 (1989) ... 10 Matter of Daniel C., 99 A.D.2d 35, 41, 472 N.Y.S.2d 666, aff’d 63 N.Y.2d 927, 483 N.Y.S.2d 697 .................................................................................................. 19 Matter of Frick v. Bahou, 56 N.Y.2d 777, 778, 452 N.Y.S.2d 18, 437 N.E.2d 277 [1982] ...................................................................................................................... 8 Matter of Giffuni Bros. v. New York State Div. of Hous. & Community Renewal, 293 A.D.2d 402, 742 N.Y.S.2d 205 (1st Dept. 2002)..........................................8, 9 Nestor v. New York State Division of Housing and Community Renewal, 257 A.D.2d 395, 683 N.Y.S.2d 74 (1st Dept. 1999) ............................................. passim Noto v. Bedford Apts. Co., 21 AD3d 762, 765 (1st Dept. 2005) ............................. 19 Prego v. The City of New York, 147 A.D.2d 165, 541 N.Y.S.2d 995 (2d Dept. 1989) ...................................................................................................................... 19 Schenkman v. Dole, 148 A.D.2d 116, 544 N.Y.S.2d 327 (1st Dep’t1989) ............. 11 Terrace Court, LLC v. New York State Division of Housing and Community Renewal, 79 A.D.3d 630, 914 N.Y.S.2d 43 (1st Dept. 2010) ............................... 20 Thorgeirsdottir v. New York City Loft Board, 161 A.D.2d 337, 555 N.Y.S.2d 706 (1st Dept. 1990), aff’d 77 N.Y.2d 951, 570 N.Y.S.2d 486 (1991) ........................ 11 Tze Chun Liao v. New York State Banking Department, 74 N.Y.2d 505, 549 N.Y.S.2d 373 (1989) ............................................................................................. 11 Vink v. New York State Division of Housing and Community Renewal, 285 A.D.2d 203, 729 N.Y.S.2d 697 (1st Dept. 2001) ................................................... 10 Statutes Multiple Dwelling Law §281 ................................................................................... 11 New York City Rent and Rehabilitation Law (“RCL”) §26-403.1 ........................... 1 McKinney’s Cons. Laws of N.Y., Book 1, Statute § 71 .......................................... 19 McKinney’s Cons. Laws of N.Y., Book 1, Statute § 73 .......................................... 19 McKinney’s Cons. Laws of N.Y., Book 1, Statute § 363 ........................................ 19 iii CORPORATE DISCLOSURE STATEMENT In compliance with §500.1 of the Rules of Practice of the Court of Appeals of the State of New York, Amici Curiae Rent Stabilization Association and Community Housing Improvement Program states they have no parents, subsidiaries or affiliates. 1 PRELIMINARY STATEMENT Amici Curiae respectfully submit this brief in support of the appeal of Petitioner-Appellant from the Order of the Appellate Division, First Department, entered August 4, 2016. The facts are as set forth in Petitioner’s Brief and thus have not been repeated except where necessary. In what is apparently an unprecedented action by DHCR in considering whether a co-tenant’s spouse who was the remaining occupant of a rent controlled apartment had reached the then $175,000 per annum threshold for deregulation, the Agency engaged in an impermissible process whereby it apportioned the income of the co-tenants to determine the tenancy did not qualify for deregulation despite the filing of joint-income tax returns with the federal government. The New York State Legislature, by enacting New York City Rent and Rehabilitation Law (“RCL”) §26-403.1, entitled “High Income Rent Deregulation,” promulgated a simplified and somewhat transparent method to determine whether a rent regulated tenant’s income meets the $175,000 deregulation threshold. As a consequence of DHCR’s determination in this matter and the Appellate Division’s affirmance thereof, the Agency has been permitted to engage in a methodology that ignores the specific criteria prescribed by statute with respect to the income verification process that 2 has been entrusted to it in conjunction with the New York State Department of Taxation and Finance (“DTF”). Rather than strictly following the statutory mandate with respect to income verification in order to fulfill the Legislature’s intention to preclude the wealthy from receiving rent regulation benefits, DHCR has improperly expanded its role in the process to achieve politically desirable results in contravention of its duty to implement the law as written. Ironically, the motion Court stated that “RCL §26-403(1) prescribes an unambiguous and simple method of ascertaining a tenant’s ‘annual income,’ according to which, for example, DHCR need not take into account the income of a tenant’s corporation.” The Court then stated: “DHCR was faced, here, with the impasse of having DTF include the income of Mr. Friedman, although he had vacated the apartment more than a year before owner served the ICF, accepting Ms. Friedman’s allocation without question, or violating its own rule limiting the information that it can demand from tenants. Administrative agencies have ‘no authority to create a rule out of harmony with the statute.’ [citation omitted]. In the unprecedented circumstances of this case, where complying with its rule would have required DHCR either to accept Ms. Friedman’s allocation blindly, or to violate the statutory limitation on those whose ‘annual income’ is to be included in ascertaining ‘total annual income,’ it was neither rational, nor contrary to law, for DHCR to violate its own rule.” 3 The foregoing is consistent with Petitioner’s and Amici’s position that the statute does not permit consideration beyond the adjusted gross income as shown in the filed tax return. Nor is DHCR permitted to violate its rules or to self- legislate beyond existing statutory regulatory confines as it has done here. The Appellate Division, in affirming the dismissal of Appellant-Owner’s (“Owner”) Article 78 Petition, allowed DHCR to ignore a statutory mandate and thus to act in contravention of the rent regulation statutes while permitting another layer of processing (i.e., apportionment) that is in no way sanctioned by applicable law. In the processing of high income/high rent deregulation matters, landlords and tenants alike must depend on the integrity of the DTF to accurately report to DHCR based upon the tenant’s tax return. The statute allows for nothing. Nevertheless, the two agencies entered into a secretive Memorandum of Understanding (“MOU”) that, without any statutory support, addressed apportionment. Pursuant to the MOU DHCR improperly determined each of the joint filing spouse’s individual incomes in order to rule the remaining occupant had insufficient income to qualify for deregulation. Neither the methodology nor the calculations were made available to the Owner but, rather, only the conclusions reached. Further exacerbating the situation was DHCR’s consideration of a 4 “confidential submission” made by the Tenants’ attorney that was not forwarded to the Petitioner. Thus, even if the procedure utilized by DHCR had been statutorily sanctioned (which is not the case) DHCR’s failure to reveal exactly what led to its conclusion deprived the Owner of due process and failed to afford the Courts a sufficient basis to determine whether the ultimate result was arbitrary and capricious. DHCR’s Order makes the following extremely significant statement at Page 8 thereof: “In most circumstances the Commissioner would be well within his rights to summarily reject a claim that someone who is on a joint return in fact does not live in the apartment as the kind of after-the-fact manipulative income shifting condemned by the Court of Appeals in Classic1. There is no question however that the facts here do not bear out any such scheme.” What the foregoing statement overlooks is that joint filing spouses can shift income between themselves to show the spouse remaining in an apartment does not meet the required threshold. More importantly, there is no statute that permits income as reported in a joint return to be dissected by DHCR as was done in this matter. Perhaps more disturbing is the surreptitious nature of the process 1 This reference is to the Court of Appeals determination in Classic Realty v. DHCR, 2 N.Y.3d 142, 772 N.Y.S.2d 1 (2004). 5 employed by the Agency since the bulk of the information it relies upon was submitted by the Tenant with the Landlord having no right to review it. INTEREST OF AMICI RSA/CHIP Amicus RSA is a trade association serving the interests of the residential housing industry. RSA represents approximately 25,000 property owners and agents who are responsible for an estimated 1,000,000 units of housing. CHIP is a trade association representing more than 3,500 apartment building owners in the City of New York. Accordingly, the issues raised by the Appellate Division’s determination in this proceeding are of significant importance to RSA’s and CHIP’s members, the majority of whom are owners of buildings containing rent regulated apartments. Because the statutory language of the Rent Control Law and the Rent Stabilization Law are identical with respect to high-income luxury deregulation, this case not only affects rent-controlled tenancies but rent-stabilized tenancies as well, of which there are many more (approximately 1.03 million stabilized apartments compared to approximately 27,000 controlled). In fact, there are approximately 31,000 rent-stabilized apartments with tenants earning $175,000 or more per year (see 2011 New York City Housing and Vacancy Survey, Table 3.14). 6 QUESTION PRESENTED Where a rent regulatory statute promulgated to enable high income/high rent luxury deregulation defines annual income for the purpose of luxury deregulation to mean the federal adjusted gross income as reported on a New York State Tax Return and no mechanism is present or suggested to apportion the income of joint filers may DHCR nevertheless apportion income. The Appellate Division answered this question in the affirmative. 7 ARGUMENT POINT I DHCR EXCEEDED ITS AUTHORITY IN VIOLATING ITS OWN RULES IN ORDER TO FIND THE INCOME OF AN INDIVIDUAL WHO FILED A JOINT TAX RETURN WAS INSUFFICIENT FOR LUXURY DEREGULATION PURPOSES DHCR’s Order states the following in pertinent part: “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 apportionment and review of the actual income of the tenant actually in occupancy in instances just like this analyzing whether deregulation is appropriate.” DHCR has failed to assert any statutory basis for the MOU. Further, to the extent the MOU permits consideration of anything beyond the Federal Adjusted Gross Income as reported on the New York State Tax Return it is violative of statutory constraints and judicial precedents limiting the scope of DHCR’s review in high income/high rent deregulation proceedings. As this Court bluntly stated in Gilman v. New York State Division of Housing and Community Renewal, 99 N.Y.2d 144, 151, 753 N.Y.S.2d 1 (2002): “Agencies are required to abide by their own regulations.” 8 The Court of Appeals in Gilman went on to quote its decision in Matter of Frick v. Bahou, 56 N.Y.2d 777, 778, 452 N.Y.S.2d 18, 437 N.E.2d 277 [1982] as follows: “the rules of an administrative agency duly promulgated, are binding upon the agency as well as all other persons who might be affected.” The motion Court itself noted that 9 NYCRR §2211.4(b)(1) and (2) limit the information DHCR may request from a tenant with respect to income verification to “a photocopy of either the preprinted mailing labels used on the New York State Income Tax Returns for the applicable years or the first page of the New York State Income Tax Returns for the applicable years for each tenant or occupant whose income is to be included in the total annual income, ‘from which the tenant must delete all social security numbers and income figures’.” The foregoing is consistent with the criteria of the Rent Regulation Reform Act of 1993 which, as noted in Matter of Giffuni Bros. v. New York State Div. of Hous. & Community Renewal, 293 A.D.2d 402, 742 N.Y.S.2d 205 (1st Dept. 2002) limits the information to which DHCR is entitled and prohibits DHCR from even requesting an actual tax return from a tenant. The motion Court then noted that DHCR was then faced with an “impasse” of having DTF include the income of the co-tenant although he had vacated the apartment “or violating its own rule limiting the 9 information that it can demand from tenants.” Id. The Court permitted the latter alternative. The motion court incorrectly characterized this as an impasse. There is no dispute the statutory language does not permit DHCR to apportion income. Equally clear is that the statute clearly defines adjusted gross income for the purposes of luxury deregulation and that if the legislature had chosen to provide a mechanism for apportionment of income amongst joint filers it could readily have done so. Instead, it provided a simple mechanism for verification of income that provides no basis for determining the source of income for individuals who file jointly. The only impasse was between the mandate of the statute and the agency’s own desire to dole out what it believes to be social justice. Accordingly, the only way the DHCR could further its notion of what ought to be was to violate the rules pertaining to what may or may not be considered in determining adjusted gross income as well as to request documentation the statute proscribes from being sought. Making matters even worse, as noted in the Appellant-Owner’s Appellate Division Brief, DHCR has done so in this matter under a complete shroud of secrecy. It is well established that DHCR’s interpretation of the statutes and regulations it administers, if reasonable, must be upheld. Matter of 85 E. Parkway 10 Corp. v. New York State Div. of Hous. and Community Renewal, 297 A.D.2d 675, 676, 747 N.Y.S.2d 115 (2d Dep’t 2002) . The foregoing does not apply, however, to a situation where DHCR simply abrogates those statutes and regulations, such as in this matter. Administrative agencies, as creatures of the legislature within the executive branch, can act only to implement their charter as it is written and as given to them. Finger Lakes Racing Assn. v. New York State Racing and Wagering Bd., 45 N.Y.2d 471, 480, 410 N.Y.S.2d 268 (1978). An agency cannot create rules, through its own interstitial declaration, that were not contemplated or authorized by the legislature and thus, in effect, empower themselves to re-write or add substantially to the administrative charter itself. Matter of Campagna v. Shaffer, 73 N.Y.2d 237, 243, 538 N.Y.S.2d 933 (1989). Thus, in the absence of a rule permitting apportionment, the existence of which would presume a methodology for its implementation, DHCR lacks jurisdiction to promulgate any such procedure. It is well established that an agency cannot engraft additional requirements or assume additional powers not contained in the enabling legislation. Vink v. New York State Division of Housing and Community Renewal, 285 A.D.2d 203, 729 N.Y.S.2d 697 (1st Dept. 2001). Equally settled is the fact that an administrative agency may only promulgate rules to implement a law as enacted; it 11 has no authority to fashion any rule out of harmony or in conflict with the statute. Thorgeirsdottir v. New York City Loft Board, 161 A.D.2d 337, 555 N.Y.S.2d 706 (1st Dept. 1990), aff’d 77 N.Y.2d 951, 570 N.Y.S.2d 486 (1991). In an analogous situation, the Appellate Division, First Department in Schenkman v. Dole, 148 A.D.2d 116, 544 N.Y.S.2d 327 (1st Dep’t 1989), noted the eligibility requirements for Loft Law coverage are exclusively set forth in several sections of Multiple Dwelling Law §281 and that particular statute affords no discretion to the Loft Board to interpose any additional governing criteria. Accordingly, in response to the Board’s imposing a further qualification with respect to the extent of residential occupancy required to so qualify, the Court stated that any adjustments or alterations to the statute must come from the legislature and the Board cannot seek to accomplish what it perceives to be a more tenable result by way of ignoring or amending the clear statutory mandate. If the legislature had intended an apportionment of income for joint filers and, consequently, the ensuing complications that would necessarily be involved instead of the simplified process that was created it was up to the legislature to do so. See Tze Chun Liao v. New York State Banking Department, 74 N.Y.2d 505, 549 N.Y.S.2d 373 (1989) (holding that where the legislature explicitly enumerated the factors to be considered by the Superintendent of Banking for a check casher 12 license qualification, if the legislature intended to include “destructive competition” as a ground for denial “they knew how to engrave it in statutory form”). By its ultra vires action, DHCR has now created another avenue to keep apartments artificially regulated and to protect those whom the luxury deregulation statutes were designed to exclude in accordance with the legislature’s intent not to protect wealthy renters. Obviously, the New York State Legislature intended no such outcome, as allowing wealthy tenant’s to occupy “affordable” apartments is antithetical to the purpose of the Rent Laws. In sum, DHCR cannot, in effect, add language to the statute that would define annual income differently for joint tax return filers in a manner other than as chosen by the Legislature. Nor can DHCR simply ignore the very plain meaning of the statuteor attempt to impute meaning into statutory language beyond its plain wording. By doing so, the Agency is not only ignoring the statutory mandate but attempting to amend the statute to accomplish a desired result. This is particularly troubling when the Agency has strictly interpreted the literal language of the statute in all prior decisions, but has now applied the statute in a more flexible manner simply because a strict interpretation would result in a politically unfavorable result. None of the foregoing is permissible. 13 POINT II ADHERENCE TO STATUTORY LANGUAGE IS NOT ONLY REQUIRED BUT RESULTS IN FAIR, EQUITABLE, AND CONSISTENT TREATMENT OF ALL WHO ARE AFFECTED BY THE STATUTE’S MANDATE DHCR and the Courts have long taken the position that high income deregulation is based either upon admissions by the tenants as to their income exceeding the threshold or the tax return on file with the DTF. The foregoing is the statutorily sanctioned procedure. AGI as reported on state income tax returns governs whether a tenancy is subject to high-income luxury deregulation. This is true even though the reported AGI may not set forth a tenant’s income with 100 percent accuracy. That DHCR and the courts have interpreted the statute to define annual income by such a straightforward measure has long been a source of frustration and concern for owners, many of whom (for numerous reasons) are clearly aware that a tenant who is extremely wealthy is capable of showing only a percentage of their true income as AGI on their income tax returns. However, that is the statutory mandate and the Courts have consistently ruled not only that the statute’s directives and limitations are binding on all parties involved but that to challenge it may even be sanctionable. For example, in Nestor v. New York State Division of 14 Housing and Community Renewal, 257 A.D.2d 395, 683 N.Y.S.2d 74 (1st Dept. 1999) the Court noted that the Rent Regulation Reform Act of 1993 and the Rent Stabilization Law prohibit the use of anything other than the federal AGI as reported on the New York State Income Tax Return in determining whether the housing accommodation qualifies for deregulation. On that basis, the Nestor Court found that DHCR appropriately declined to consider the income of the tenant’s corporation, in addition to his own income, in determining whether the apartment qualified for deregulation. The Court found the Agency’s determination had a rational basis and was not arbitrary and capricious, thus dismissing the landlord’s Article 78 proceeding. The Court further stated the following: “It should be observed that the terms of the law are unambiguous. It is the function of the court to enforce the statute in a manner that is consistent with legislative intent and, when that intent is clear upon its face, the court will not expand the scope of the legislation by judicial construction [citations omitted].” More importantly, and of extreme significance with respect to the instant matter, the Nestor Court stated the following: “While the criterion of household income does not take into account all income that might be imputed to the tenant, it has the advantage of affording a simple and consistent methodology. It is for the legislature to decide whether public policy is better served by ease of administration or precision of measurement, and the courts will not intrude upon the legislative prerogative.” 15 The fact that in the instant case it was income that was included in the tax return, rather than omitted from the return, should not allow DHCR to manipulate the procedure to reach a different result in the face of the very same statutory regime. The Appellate Division cited Nestor in its determination, but only for the proposition that the statute at issue in that matter unambiguously prohibited the inclusion of the tenant’s corporation’s income. Thus, the Appellate Division implicitly recognized the landlord was bound by the tax return as filed by the tenant even though there was a question of whether the tenant had income other than that which was reported on his income tax return. In the instant matter, the Appellate Division went on to say that, “As in Nestor, we find that the operative statute unambiguously provides that only the income of the occupants of the housing accommodation shall be included in calculating the total annual income.” Nestor does not support that conclusion. Rather, Nestor merely holds that the only income that may be considered is that which is reported as the occupant’s federal adjusted gross income, as reported on the New York State Income Tax Return. Nestor had nothing to do with a non-occupant’s income, but rather whether circumstances beyond the four corners of the tax return could be considered. The Appellate Division next stated that Matter of Ansonia Assoc. L.P. v. 16 Unwin, 130 A.D.3d 453 (1st Dept. 2015) that was relied upon by Petitioner is inapplicable. The Appellate Division noted the tenant in that matter attempted to assert a position that was incompatible with her tax return with respect to her primary residence. The Appellate Division noted that, unlike in that matter, the tenant is not asserting a position contrary to prior declarations. That is erroneous in that the tenant is asserting that despite having filed a joint income tax return whereby her income was to be considered jointly with that of her husband that should not be the case with respect to luxury deregulation. In this proceeding, DHCR’’s determination stated the following in attempting to justify its departure from the well-established DTF verification procedure: “This is not an unwarranted amendment to the return as in Classic Realty or an effort to fish for corporate or other income as in Nestor or Katz. It is instead an effort to analyze what would be an appropriate and proper comment as to who the actual occupant of the apartment is and what income belongs to them. In most circumstances the Commissioner would be well within his rights to summarily reject a claim that someone who is on a joint return in fact does not live in the apartment as the kind of after the fact manipulative income shifting condemned by the Court of Appeals in Classic. There is no question however that the facts here do not bear out any such scheme.” The foregoing is extremely disingenuous, as the holdings in Classic Realty, 17 Nestor, and Katz all involved situations where strict adherence to statutory criteria was held to be required. Although the facts of those cases are not identical to those in the instant matter (many of the cited cases address arguments that the federal AGI as reported understates the actual income of the tenant, while the tenant in this case claims that the federal AGI as reported overstates her actual income), the principle enunciated in those cases (i.e., that the statutory definition of annual income cannot be circumvented by DHCR) should apply to all cases where there is an attempt to go beyond the very clear statutory language, not just where DHCR agrees with the result that flows from that language. By asserting that there is a need to apportion the AGI in this case, DHCR is effectively arguing that while it is bound by the strict statutory criteria to follow the AGI as reported and avoid consideration of extraneous facts when those facts favor deregulation, it may somehow consider extraneous facts beyond the reported AGI when those facts appear to disfavor deregulation. Although DHCR purported to find no “scheme” to shift income here, the Tenants did in fact take advantage of the favorable tax treatment afforded to filers of joint returns. Having made this choice not to file individual tax returns they, like the landlord in Nestor, are bound by the AGI as reported on the state tax returns. Further, the passage from the Order cited above reveals DHCR’s 18 misinterpretation of their role. There is no need to analyze what income belongs to an occupant because the statute clearly defines income of an occupant as that which is reported as federal AGI on the state tax return. Further, there is no need to analyze who occupies the apartment when both individuals are tenants (i.e., signatories to the lease) and are also the joint filers of the tax returns at issue. While the statute is clear, the DHCR nevertheless strains to find a grey area where they can assert authority to fill in the gaps. But the statutory language leaves no gaps to fill in. Significantly, in Nestor, the Court went so far as to impose sanctions upon the landlord’s counsel for attempting to go beyond the language of the statute, since the statute clearly does not provide for anything but consideration of a tenant’s income tax return. Arguably, there is little difference with respect to the Tenant’s actions in this matter, notwithstanding the fact that DHCR for some reason, and apparently for the first time, decided it would ignore the statutory definition of annual income and somehow find it can and should “apportion” income. The statute clearly provides neither owners nor tenants the option of going beyond the AGI as reported in the filed tax return to claim the income shown is somehow not what it appears to be. Thus, where, as here, the statute is clear, 19 neither the DHCR nor the Court should attempt to cure an omission in the statute by supplying what it believes should have been put there by the legislature. Prego v. The City of New York, 147 A.D.2d 165, 541 N.Y.S.2d 995 (2d Dept. 1989); McKinney’s Cons. Laws of N.Y., Book 1, Statute §363. The judiciary should not substitute its wisdom for that of the legislature. Matter of Daniel C., 99 A.D.2d 35, 41, 472 N.Y.S.2d 666, aff’d 63 N.Y.2d 927, 483 N.Y.S.2d 697, McKinney’s Cons. Laws of N.Y., Book 1, Statutes §71, 73. The Appellate Division and motion court’s permitting DHCR to go beyond the statutory mandate pertaining to luxury deregulation and thus approving its conduct in that regard is clearly violative of these basic tenets of statutory construction. If it was the intention of the legislature in enacting the luxury high income deregulation statutes to permit other than the simplified definition of annual income and the routine DTF verification procedure by allowing review of tax and wage transcripts, W-2s, and other detailed and itemized income data, it would have done so. Moreover, the legislative history of the Rent Regulation Reform Act of 1993 makes clear that there is no public interest in the expenditure of “public and private resources” to subsidize high-income households, as defined by the statute. See Noto v. Bedford Apts. Co., 21 AD3d 762, 765 (1st Dept. 2005) (citing Mem.of Sen. Kemp Hannon, 1993 N.Y. Legis. Ann. at 175). 20 POINT III DHCR’S FAILURE TO ABIDE BY ESTABLISHED PROCEDURE WHEREBY INCOME AS SET FORTH IN A TENANT’S TAX RETURN AS VERIFIED BY THE DEPARTMENT OF TAXATION AND FINANCE IS THE SOLE BASIS FOR DETERMINATION OF A LUXURY DEREGULATION APPLICATION WAS ARBITRARY, CAPRICIOUS AND ERRONEOUS AS A MATTER OF LAW A decision of an administrator agency which neither adheres to its own prior precedent nor indicates its reasoning for reaching a different result on essentially the same facts is arbitrary and capricious. Terrace Court, LLC v. New York State Division of Housing and Community Renewal, 79 A.D.3d 630, 914 N.Y.S.2d 43 (1st Dept. 2010). As illustrated by the holding in Nestor v. New York State Division of Housing and Community Renewal, supra, verification of income is limited to the federal AGI as reported on the tax return on file with the DTF. Just as DHCR in Nestor was not permitted to go beyond the Tenant’s tax return to consider the corporate income that was not reported on the individual tax return, the Agency similarly may not go beyond the return to apportion income to assist the tenant in avoiding luxury deregulation. Any such inconsistent action deviates from the Agency’s own prior precedent and is thus arbitrary and capricious. DHCR has failed to explain why it can ignore the statutory definition of 21 annual income and go beyond the AGI as reported in a joint tax return to apportion income when it has unwaveringly adopted the position that it is bound by the statutory definition of income in similar circumstances. The Order appears to suggest that because this situation is one in which a tenant’s income could be increased by looking beyond the reported income, but instead is a situation where the tenant’s income could be decreased, DHCR could change its longstanding precedent and ignore the plain meaning of the statute to suit its politically- motivated ends. If DHCR’s decision is left to stand, this court would be sanctioning the Agency’s position that if consideration of factors that are not supported by statutory criteria can defeat deregulation it need not strictly adhere (nor even loosely adhere) to the statute when such adherence will result in deregulation. Simply stated, in addition to the lack of a statutory foundation for any such ruling, DHCR’s actions in misapplying the law and deviating from precedent are clearly arbitrary and capricious. CONCLUSION The determination of the Appellate Division should be reversed and Appellant's Article 78 proceeding should be granted to the effect of annulling DHCR's order ofNovember 19, 2014. Dated: Williston Park, New York December 29, 2016 Respectfully submitted, HORING WELIKSON & ROSEN, P.C Attorneys for THE RENT STABILIZATION ASSOCIATION OF N.Y.C., INC. AND COMMUNITY HOUSING IMPROVEMENT PROGRAM, as Amici Curiae By: Niles C. Welikson, Esq. 11 Hillside A venue Williston Park, New York 115 96 (516) 535-1700 22 NEW YORK STATE COURT OF APPEALS CERTIFICATE OF COMPLIANCE I hereby certify pursuant to 22 NYCRR PART 500.1(j) that the foregoing brief was prepared on a computer using Microsoft Word. Type. A proportionally spaced typeface was used, as follows: Name of typeface: Times New Roman Point size: 14 Line spacing: Double Word Count. The total number of words in this brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of citations, proof of service, certificate of compliance, corporate disclosure statement, questions presented, statement of related cases, or any authorized addendum containing statutes, rules, regulations, etc., is 4,539. Dated: Williston Park, New York December 29, 2016 Niles C. Welikson, Esq. HORING WELIKSON & ROSEN, P.C. Attorneys for the Rent Stabilization Association of N.Y.C., Inc. (“RSA”) and Community Housing Improvement Program (“CHIP”) 11 Hillside Avenue Williston Park, New York 11596 (516) 535-1700