ORIG!NAL
Andrew M. Cuomo
Governor
New York State Division of Housing and Community Renewal
25 Beaver Street
Via Overnight Mail and
Electronic Filing
State ofNew York
Court of Appeals
20 Eagle Street
Albany, NY 12207-1095
New York, NY 10004
May 31, 2016
Attn: John P. Asiello, Chief Clerk of the Court
James S. Rubin
Commissioner
Re: Matter of60 East 12111 Street Tenants' Assn. v. NYS DHCR, et al
Matter of 12 Broadway Realty LLC v. NYS DHCR, et al
APL-20 16-00068
Respondent NYS DHCR's Letter Submission pursuant to Rule 500.11
Dear Mr. Asiello:
By order dated March 17, 2016, the Appellate Division, First Department,
certified to this Court the question: "Was the order of the Supreme Court, as
modified by this Court, properly made?" Respondent New York State Division of
Housing and Community Renewal ("DHCR") submits this letter pursuant to the
Court of Appeals' direction that this appeal proceed pursuant to Rule 500.11.
1
PRELIMINARY STATEMENT
This is an appeal by the 60 East 12th Street Tenants' Association and that
organization's President ("Appellants") from an Order of the Appellate Division,
First Department entered on December 29, 2015. The Order of the Appellate Divi-
sion modified the Order of the Supreme Court, New York County (Alice
Schlesinger, J.) ("the lower court order"). The Order of the Appellate Division
modified the lower court's order to the extent of permitting DHCR on remand
to reconsider that portion of an application by Respondent 12 Broadway Realty
LLC ("Owner") for an MCI rent increase based upon resurfacing of the subject
building's exterior in accordance with the conditions set forth by the Appellate
Division's Order. While DHCR did not participate in the appeal at the Appellate
Division, the agency requests that this Court affirm the Order under appeal and
permit DHCR to resolve the issues remanded to it by the Appellate Division.
The underlying administrative matter arises under DHCR's administration
of the Rent Stabilization Law and its authority and responsibility to review
applications for MCI rent increases which constitute building-wide installations
to rent stabilized buildings. See, generally Ansonia v. DHCR, 75 N.Y.2d 206, 551
N.Y.S.2d 871 (1989). DHCR in its regulations has prmnulgated, as part of its Rent
2
Stabilization Code, a useful life schedule based on an anticipated period that such
an installation should last. The Code sets forth the useful life provisions for
"pointing" (15 years) (9 NYCRR § 2522.4(d)(4) and '·'resurfacing exterior walls"
(25 years, 9 NYCRR § 2522.4( d)(l9)). DHCR, upon remit, must issue a
determination of the nature of the work under the earlier MCI and whether, both
generally and based on the facts of this case, these two are separate MCI items, and
if so, whether the failure to expend completely the useful life under one provision
precludes application and compensation under the other.l. (see generally, 925 D
Realty v. DHCR, 85 A.D.3d 649,925 N.Y.S.2d 872 (P1 Dept. 2011); cf.SP 141 E
33 LLC .v DHCR, 91 A.D.3d 575, 937 N.Y.S.2d 220 (1st Dept. 2012)).
DHCR may also assess, although it is understandably not the position
espoused by either the Owner or the Appellants whether under the facts of this
case any other provision of its Code provides an option to DHCR other than a
complete grant or complete denial of the application for the MCI increase and
if so, whether that option should be exercised. All parties agree on the need
for a remand. Appellants, however press for a pre-decided outcome of the remit
limited to discrete procedural issues that arose through the DHCR processing itself,
which would necessarily preclude any substantive determination on the merits.
Thus Appellants (1) take the position that, although the Owner also requested and
DHCR granted reconsideration of whether a rental increase should have been
3
granted for the resurfacing, DHCR was restricted only to re-opening its processing
by the Rent Administrator (DHCR's first level of review) because of its failure to
review reply papers it had received and was otherwise precluded from reviewing
the determination it had re-opened; and (2) take the position that the somewhat
fragmentary and short hand characterizations of the nature of the initial installation
by itself(where its subsequent useful life was not at issue) collaterally estops
DHCR from actually examining the nature of the work.
DHCR seeks to issue a full, substantive determination and has no issue with
addressing any and all alternative arguments that have been raised in order to reach
its decision. DHCR has agreed to issue its final determination within sixty-five
days of this Court's decision unless directed to do otherwise.
SUMMARY OF THE ADMINSTRATIVE PROCEEDINGS
A. Prior Orders of the DHCR
1. DHCR Rent Administrator's Order No. JB4100560M
On June 20, 1995, DHCR issued its Rent Administrator's Order
under Docket No. JB4100560M ('the prior MCI Order) granting a prior owner of
the subject building, 60 East 12th Street, New York, New York ("the subject
building") a building-wide rental increase of $9.19 per room per month based upon
the prior owner's instaJlation of a major capital improvement ("MCI") in the
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building (R. 188- 189)1• The prior MCI Order described the item for which the
increase was granted as "ResurfE>..1: Walls Etc" The prior owner applied for the
increase several months earlier, on February 13, 1995. The total claimed as well as
approved cost of the MCI was $256,219.00. As stated in the lower court's order,
DHCR no longer possesses the underlying administrative file for the prior MCI
Order (R. 26).
2. DHCR Rent Administrator's Order No. LK410011 X
On February 20, 1998 DHCR issued its Rent Administrator's Order under
Docket No. LK41 00 llX ("Order of Modification"). Said order which modified
the prior MCI Order, described the prior MCI, not as "Resurf ext walls etc" but as
"waterproofing, pointing and masonry" (SRT 19). The Order of Modification
lowered the increase granted by the prior MCJ Order $.44 per room per month
because the prior owner had previously received a J-51 tax abatement based upon
the prior MCI work.
B. The Present MCI Application Proceeding
1 References to the Record on Appeal arc denominated by "R" tollowcd by the page number. As
noted by Appellant, the proceedings before the Appellate Division involved two Article 78
proceedings, one by Appellants and one by the Owner challenging the same DI ICR
determination. The page number references to the Record on Appeal are the same for each of the
Records on Appeal produced for the two proceedings. However, Appellant has also submitted
two Supplemental Records on Appeal. References to the Supplemental Record in the proceeding
commenced by the Owner are denominated as "SRO". References to the Supplemental Record
in the proceeding commenced by the Appellants or Tenants are denominated as "SRT".
5
The proceeding was commenced by the filing of an application for a rental
increase building-wide based on claimed installations of various MCis at the
subject building in November, 2007.
The items for which rental increases were requested in the application
consisted, among other things, of resurfacing ofthe exterior walls of the building at
a claimed cost of$1,931,013 .69, architectural fees in connection with the
resurfacing at a cl~imed cost of $249,452.62 and window installation building-
wide at a claimed cost of$217,400.00 (R. 115-116). Based upon the claimed cost
of all the items requested, the application requested an increase in rent of $88.28
per room, per month.
In various submissions made by the Appellants in response to the
application, they claimed that the subject building had prior MCI increases granted
for certain items now applied for and that the previous work performed had not
exceeded its useful life. Thus, Appellants claimed, no increase could be granted for
them. In addition, even ifthe replacement of bricks constituted an MCI, it was
ineligible for an increase since an MCI increase for "exterior resurfacing,
waterproofing, pointing, and masonry" (See, SRT 55) was granted in 1995 under
DHCR's prior MCI Order, Docket No. ZJB4100560M. In the absence of an
application for a waiver for the useful life of these items, Appellants claimed, no
MCI rental increase could be granted.
6
In a submission dated July 25, 2008 (R. 66-90), with regard to its request for
a rental increase for the resurfacing of the subject building, the Owner stated that it
was clear that the resurfacing of exterior walls was an MCI qualifying for a rental
increase under the Rent Stabilization Code. The Owner denied that the exterior
resurfacing was performed before the expiration of the useful life of any similar
work performed previously. The Owner claimed that the work performed under
the prior MCI order granting an increase, for an MCT item referred to as "Resurf
Ext Walls Etc." was actually issued for a type of work which did not require the
replacement of brick facing on the entire area of the building but was actually for
water proofing, pointing and masonry as noted in DHCR's Order of Modification
issued under Docket No. LK410011X (SRT 19-20).
The Owner attached to the July 25, 2008 submission to DHCR an affidavit
from the architect hired in connection with the resurfacing work under the instant
MCI application as well as other work performed at tihe building. Among other
things, the architect stated that the resurfacing work completed at the building
under the instant MCI application was totally different from the work completed
under the prior MCI Application. The architect stated that the exterior walls were
in very poor condition and that much of the brick work was saturated with water,
the walls showed the same signs of stress and there was possibility of sections of
the wall failing. He stated extremely poor condition of the exterior walls at the
7
subject building necessitated a complete reconstruction of the outer layer of brick
work. He also claimed that the current wall work was different from the work
performed under the previous MCI order. Among other things, the architect
claimed that the amount granted for the prior work performed ($256,219) could not
have encompassed the type of work performed herein (R. 80-84 ).
In a submission dated May 22, 2009 (R. 118-125) the Appellants stated that
the Owner had the burden of proving that the useful life of prior applications had
expired. The arguments of the Owner with regard to the useful life, stated the
Appellants, amounted to an improper collateral attack upon DHCR's Orders. Once
the prior owner obtained an MCI increase for resurfacing, subsequent owners were
estopped from claiming otherwise. The Appellants also claimed that, in any event,
prior DHCR precedent would state that since pointing and waterproofing or a
comprehensive building-wide exterior restoration are both methods for keeping a
building waterproof, the semantic difference between the two projects would not
obviate the same need to obtain a waiver.
1. DHCR's Rent Administrator's Order Number VK4100420M
On October 9, 2009, under order number VK410042-0M, DHCR's Rent
Administrator determined the owner's application for rental increases based upon
the claimed MCis (R. 126-130). DHCR's Rent Administrator denied the
application for rental increases except for a portion of the request for increases
8
based upon windows. Among other things the Rent Administrator denied the
request for a rental increase for resurfacing of the exterior wall work finding that
an increase was previously granted and that the Owner did not file for a waiver of
the useful life criteria for the previous work. The useful life of the previous work
had not expired. DHCR's Rent Administrator also denied a rental increase based
upon the architect's work stating that since resurfacing was denied, no architect
fees i.n connection with those could be granted and that no architect fees would be
granted with regard to windows since architectural work was not necessary for the
scope of work performed in installing windows. The Rent Administrator stated
that the Owner had failed to respond to requests from DHCR for certain proof of
payments made in connection windows. The DHCR's Rent Administrator,
therefore, found that the Owner had not substantiated approximately $50,000 of the
claimed cost for the windows. The Rent Administrator thereupon granted a
building-wide rental increase of $6.02 per room per month of the total $88.28 per
room per month increase requested by the owner in the application.
2. The Owner's Request for Reconsideration
On October 20th, 2009 the Owner filed a request for reconsideration of
the Rent Administrator's order based upon what it stated were various irregulari.ties
in vital matters in Order Number VK410042-0M (R. 30-37). The Owner also
claimed that it was an irregularity in a vital matter, or illegality to refuse to grant a
9
rental increase for the resurfacing of the building's exterior on an alleged failure to
exhaust the useful life of the prior MCI granted. The Owner stated once again that
the prior MCI work performed on the outside of the building was completely
different, consisting of pointing, waterproofing and related work and the work
done by the Owner was not duplicative of that work. Once again, the owner noted
that the DHCR order of modification, issued in 1998 under docket no.
LK410011X, referred to the prior work as pointing and water proofing and not
resurfacing. The Owner also stated among other things that it had responded to
DHCR requests for further proof of the claimed cost of, among other things, the
windows and attached a copy of its submission dated and stamped as received by
DHCR on September 23, 2009. On November 9, 2009, DHCR's Rent
Administrator forwarded a letter to the Owner stating that the proceeding would be
re-opened (SRO 18).
On November 19, 2009 DHCR's Rent Administrator issued her notice of the
commencement of a proceeding to reconsider the 2009 MCI order based upon
fraud, illegality, or irregularity in a vital matter based upon the issues raised by the
owner in its request for reconsideration (R.l31). The notice stated, in part, that:
... the owner's representative requested a reconsideration
of the matter. In substance, the owner's representative argues
that ( 1) the Rent Administrator erred in asserting that the owner
failed to submit requested information because the owner had,
in fact, submitted a response upon request (2) had the Rent
Administrator reviewed the owner's submission which she
10
requested, the information substantiating the disallowed pmiion
of the windows installation would have been evident (3) the
portion of the Administrator's order concerning the previous
grant of a rent increase due to the resurfacing of the exterior walls is
improper since there is no evidence that an MCI had ever been
previously performed for installation in question . . ..
The notice also stated that the Rent Administrator deemed it appropriate to re-open
the matter to "further investigate the issues raised ... "
The Appellants responded to the re-opening in a submission dated February
4, 2010 (SRT 86-96) . With regard to the resurfacing, once again the Petitioners-
Tenants claimed that the owner had never applied for a waiver of the useful life of
the previous work described in the prior MCI order as resurfacing and that its
claim that the two MCI's were different could have been raised in a waiver
application. In addition, said the Petitioner, there were insufficient grounds for
reconsideration of the order since they did not constitute irregularity in a vital
matter or any other grounds for granting reconsideration.
3. DHCR's Order Pursuant to Reconsideration, Docket No. XK
410008RK
On June 30, 2011 DHCR's Rent Administrator issued her Order Pursuant to
Reconsideration under Docket Number XK 410008RK (R. 132-139). While,
among other things, finding that the Owner had not proved that exterior resurfacing
had not been performed under the prior MCI order and that evidence indicated
resurfacing had been done (other than the prior MCI order no other evidence
11
tending to support this was mentioned) DHCR nonetheless granted a rental
increase for resurfacing. The remaining claims raised by the Owner on reconsider-
ation were denied. Based on the granting of the MCT in part for resurfacing,
DHCR approved $897,808.49 of the $1,931,013.69 claimed cost for the exterior
surfacing as a basis for a rental increase in total of $3 6.04 per room per month.
DHCR also disallowed any increase for the remainder of the claimed costs for
resurfacing, stating that they represented individual items which did not qualify for
MCI rental increases and also disallowed a portion of the cost claimed by the
Owner for the resurfacing equal to the cost of the work performed under the prior
MCI order. The DHCR also changed the effective date of the rental increase from
January 1, 2008 to August 1, 2008 based on the fact that the Owner had not
submitted certain information regarding commercial space until its July, 2008
submission. This decreased the retroactive portion of the MCI rental mcrease
granted with regard to rent stabilized tenants.
4. The PAR Proceeding and DHCR's PAR Order issued on August
15,2013 under Docket Nos. ZH410062RO, et al
Both the Appellants and the Owner filed Petitions for Administrative
Review or PARs (DHCR's second level of review) ofthe reconsideration order
(seeR. 140-158 where the PARs are reproduced without their accompanying
Exhibits).
12
On August 15, 2013 DHCR issued its PAR Order denying the Appellant's
PAR and granting in part the Owner's PAR (R. 159-161). The PAR Order found
that the decision to reconsider whether a rent increase should have been granted for
resurfacing was appropriate in light of evidence indicating an irregularity in a vital
matter. The useful life of the prior installation is not an issue, said the PAR Order,
in that the cost of the earlier installation was deducted from the approved amount
and the tenants are not paying a double amount. However in making this
determination, the PAR order stated: "[i]n addition, the Rent Administrator
properly reduced the approved cost of the exterior work by the amount previously
approved for pointing and waterproofing under Docket JB4100560M . . . "
(emphasis added, see page 2 of the PAR order). No further explanation of this
language was given.
The PAR order denied the remaining claims raised by the Appellants on
PAR. With regard to the Owner's PAR, the PAR order granted it only in part. Thus
the PAR order found that the cost of certain items of work not previously granted
should have been approved as costs. In addition, the owner's assertion that the
$50,000 paid to a contracting company for completion of the window apartment
installation were also found to have merit. The PAR order thereby modified the
rent increase granted by increasing it to a total of $46.25 per room, per month,
adding $10.21 per room per month to the increase previously granted.
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C. The Article 78 Proceedings
The Owner and the Appellants both commenced Article 78 proceedings
(See, SRO 3-167, SRT 3-128). The Appellants claimed that absent a timely
waiver application, DHCR lacked any discretion to grant the rent increase for the
duplicative work performed during the useful life of the prior MCI for resurfacing
and that any waiver application would have had to satisfy the requirements of the
Rent Stabilization Code. The Appellants also argued that there was no basis for
reconsiderat ion of the initial denial of rental increases for the second resurfacing
job under the Rent Stabilization Code or case law.
The Owner claimed, among other things, in its Article 78 proceeding that
DHCR improperly pushed back the effective date of the MCI rent increase from
January 1, 2008 to August 1, 2008, stating that the information not originally
furnished was trivial and of no effect. The owner also claimed that DHCR
improperly disallowed the architectural expenses associated with resurfacing the
entire building. The Owner also claimed that DHCR should not have disallowed
certain costs which the Owner stated were directly related to the resurfacing MCI.
Pursuant to a court ordered stipulation dated November 5, 2013 (R. 110-
113), the two CPLR Article 78 proceedings were consolidated for joint hearing and
determination.
14
With regard to both CPLR Article 78 proceedings DHCR filed motions to
remit the underlying administrative proceedings back to the agency. As stated with
regard to DHCR's affirmation in support of the motion at paragraphs 3 and 4:
The reason for this remit is both the petitions of the tenants and
owners raise significant issues not adequately dealt with in the final
determination of the Commissioner. Part of this matter turns on both
the substance and characterization of prior work done on the surface
of this building in the 1990's alternatively describe as "pointing or
water proofing" or as "resurfacing." Those two separate characteriza-
tions are themselves listed into two provisions of the Rent Stabiliza-
tion Code ("RSC") as being MCI eligible. See RSC §2522.4(a)(3)
[19] and [21]. Both parties at various points in these administrative
proceedings argue that these characterizations are either extremely
relevant or irrelevant as to whether the prior work should bar a more
recent MCI application.
Unfortunately, the PAR determination does not adequately address
this issue neither does it directly address the parties' points in this
regard. The grant of the MCI on reconsideration by the Rent
Administrator expressly finds the prior work to be within the useful
life of this new resurfacing application but nonetheless, grants the
MCI. The PAR determination, on the other hand terms this prior
work to be pointing and water proofing, while otherwise upholding
the granting of the MCI. Assuming, that DHCR adheres to its
determination, there would need to be some reconciliation and clarity
as whether the Commissioner was upholding the findings of the RA or
was in fact deciding this matter on a different theory which it did not
adequately explain. In addition, DHCR must more adequately address
the matters raised by the tenants or deny the application based on the
resurfacing work. Thus tenants contend, among other things, that there
was no basis for re-opening the proceeding based upon a request for
reconsideration filed by the owner. While the PAR order states that
there was evidence of the existence of an irregularity in a vital matter,
tenants state there is no further discussion in the PAR as to this issue
other than this bald finding. Assuming that there needs to be an
express finding on PAR, as to whether the prior work constituted
resurfacing or "pointing and waterproofing" , there will need to be
15
additional processing as the DHCR file for this earlier MCI, in
accordance with the schedule ofDHCR's record retention policy is no
longer available for review.
R. 94-95.
The Owner, despite the fact that it had been granted an increase for the
resurfacing supported the remit (R.l63-164). Appellant opposed DHCR' s motions
to remit (R. 165-187).
D. Decision of the Lower Court.
On October 21, 2014 the lower court ostensibly granted DHCR's motions to
remit (R. 13-27). However, as recognized by the Appellate Division, the lower
court's decision "effectively annulled DHCR's reconsideration of the MCI issue
and precluded it on remand from resolving the discrepancy between the 1995 and
1998 orders as to the nature of the work performed on the building which justified
the 1995 grant of an MCI rent increase."
While the lower court itself found that resurfacing of exterior walls and
pointing and waterproofing are different MCI's under the Rent Stabilization Code
(R.20-21 ), the lower court nonetheless found that the only possible basis for
reconsideration based upon irregularity in a vital matter concerned whether the
agency failed to consider certain evidence of the Owner's expenditures for the
replacement of windows in the building (R.23-24).
16
The lower court found that although the Owner in its request for
reconsideration in 2009 raised the issue of the denial of any increase for
resurfacing, the lower court found no basis existed for the reconsideration of that
issue since there was no "real discrepancy" in the description of the work as
performed on the outside of the building as set forth in the PAR Order issued in
2013 and the earlier order issued by DHCR after reconsideration (R. 25-26).
Because the Owner had filed the reconsideration request instead of a PAR setting
forth its objections to challenge the 2009 MCI Order issued under order number
VK41 00420M, the lower court fund the Owner had failed to preserve the issue of
challenging the denial of the resurfacing MCI. Thus the lower court claimed that
the Owner had failed to exhaust its administrative remedies (R. 25).
The lower court also held DHCR could not reconsider the resurfacing issue
because, although the prior owner had received an increase for the full amount of
the cost of the improvement in the prior MCI Order issued in 1995, it had failed to
appeal that DHCR identified the work performed as "resurf ext walls etc". The
lower court found that any attempt to determine the work performed under the
prior MCI Order would constitute a collateral attack on that order (R. 26).
The lower court, on January 21,2015 granted the Owner's motions for leave
to appeal in both proceedings and also issued a stay of enforcement of a time
17
limitation for issuance of a new determination by DHCR after the remand (R. 6-
12). DHCR did not participate in the appeal to the Appellate Division.
E. The Appellate Division Decision and Order
By a three to two majority, the AppeiJate Division held that the lower court
should not have "effectively annulled" DHCR's determination to grant
reconsideration of the denial of the MCI increase for resurfacing:
Moreover, the court should not have effectively annulled
DHCR's reconsideration of the MCI issue and precluded
it on remand from resolving the discrepancy between the
1995 and 1998 orders as to the nature of the work performed
on the building which justified the 1995 grant of an MCI
rent increase. DHCR has the authority to apply its expertise
to the nature of the work performed on the building which
justified the 1995 grant of an MCI rent increase. DHCR has
the authority to apply its expertise to the question of Owner's
entitlement to a subsequent MCI rent increase. Although the
Rent Administrator's 2011 order largely rejected Owner's
MCI application and conclusorily disregarded the discrepancy
between the 1995 and 1998 orders, the subsequent challenged
order used the language of the 1998 order in describing the First
Project as waterproofing and pointing. DHCR correctly viewed
those several orders as so inconsistent and unclear about this
matter as to constitute an irregularity in a vital matter,
warranting a remand [citations omitted]. As this Court
recognized in Matter of Peckham v. Calogero (54 AD3d 27, 28,
861 N.Y.S.2d 316 [Pt Dept 2008], aff'd 12 NY3d 424,911
N.E.2d 813, 883 N.Y.S.2d 751 [2009]), when such an
"irregularity in vital matters" is presented, and the agency
is not merely attempting to reach a different determination,
a remand is appropriate despite the otherwise final nature
of the questioned order. This is in keeping with the deferential
standard utilized in assessing the careful and considered
approach to this problem taken by the administrative agency
(DHCR) charged with the responsibility over the subject
18
matter at issue. Contrary to Tenants' argument, such
"irregularity in vital matters" is not limited to procedural
defects but may be substantive in nature (see e.g. Matter of
Silverstein v Higgins, 184 AD2d 644, 584 N.Y.S. 2d 915
(2d Dept 1992]).
The Appellate Division also stated that the lower court erred in finding
that the Owner was collaterally estopped by the prior MCI Order issued in
1995 in light of the inconsistency between that order and the 1998 Order of
Modification. The Appellate Division found that since the prior MCI Order
granted the prior owner the full relief sought in the prior application, the prior
owner did not have the necessary opportunity to appeal the question of the
nature of the work in the prior MCI proceeding.
The Appellate Division also found that the lower court had erred in finding
that the Owner had failed to exhaust its administrative remedies, stating:
Notwithstanding that Owner fil ed an RFR
rather than a PAR from the 2009 order,
Owner undisputedly fi led a timely PAR from the 2013
order, challenged in these proceedings (cf. Matter of
Klein v. New York State Div. ofHous. & Community
Renewal, 17 AD 3d 186, 795 N.Y. S.2d 520 [1 st Dept 2005]).
As stated by the Appellate Division, DHCR, upon remand, is limited to the
facts and evidence already submitted to the agency unless a party submits fact or
evidence which could not have reasonably been included in the prior
administrative proceedings.
Upon Appellants' motion, the Appellate Division granted leave to appeal its
19
Order to this Court.
ARGUMENT
DHCR asks this Court to affirm the decision and order of the Appellate
Division so as to permit the DHCR to determine the factual question as to the
nature of the work performed under the prior MCI Order issued in 1995.
While that order itself described the item for which the increase was granted
with the fragmented terms "resurf ext walls etc", at various times subsequent, this
was stated by DHCR to encompass the resurfacing of exterior walls as described in
Rent Stabilization Code 9 N.Y.C.R.R. §2522.4(a) (3)[21] defined as "consisting of
brick or masonry facing on entire area of all exposed sides of the building" under
the 2009 MCI Order issued under Docket Number VK4100420M or the less
comprehensive "pointing and waterproofing" set forth in 9 N.Y.C.R.R.
§ 2522.4(a)(3)[ 19], as set forth in DHCR's Order of Modification issued in 1998
under docket number LK41 0011X and DHCR's PAR Order issued on August J 5,
2013. The Appellants' claim that the prior MCI work consisted of resurfacing
rather than water proofing and pointing is based solely on the fragmented terms
used in the prior MCI Order rather than any other evidence of a factual nature
which would determine the actual scope of the work performed. Thus the
20
Appellate Division's majority found that the prior MCI Order description of the
work was "without any elaboration or supporting fact findings,.
The Appellate Division's Order, therefore, gave to DHCR that which it had
sought to do, at least in part, by its motions to remit the two Article 78
proceedings; that is, to apply its expertise to the factual question of the nature of
the work and resolve the discrepancy displayed in the administrative record. As
stated above, The Appellate Division has, additionally, removed any obstacles to
this remit finding ample grounds that an irregularity in a vital matter existed
pursuant to Rent Stabilization Code 9 N.Y.C.R.R. § 2527.8 and that the lower
court had erred in holding that the Owner failed to exhaust its administrative
remedies.
It is respectfully submitted that the Appellate Division under the fact
intensive and unique circumstances of this case correctly found that the lower
court erred in finding that the prior MCI Order issued in 1995 collaterally estopped
an examination of whether the work performed under the instant app1ication was
the same MC£ as performed under the prior Order. Thus the Appellate Division
found the Owner "established that its predecessor did not have 'a full and fair
opportunity to litigate in the prior proceeding'. See, Gersten v. 56 71h A venue,
88 A.D.3d 189, 928 N.Y.S.2d 515 (1 51 Dept. 2011) cited by the Appellate
21
Division. This was so, since the prior MCI Order granted the predecessor owner
the full relief the predecessor owner requested. Because of this the predecessor
owner wasn't aggrieved by the determination and could not appeal it. As stated in
Parochial Bus Systems, Inc.,et al v. Board ofEducation of the City of New York,
60 N.Y.2d 539, 470 N.Y.S.2d 564 (1983), also cited by the Appellate Division
herein:
Generally, the party who has successfully obtained
a judgment or order in his favor is not aggrieved by
it, and consequently, has no need and, in fact, no right
to appeal [citations omitted]. The major exception to this
general rule, however, is that the successful party may
appeal or cross-appeal from a judgment or order in his
favor if he is nevertheless prejudiced because it does not
grant him complete relief. This exception would include
those situations in which the successful party received an
award less favorable than he sought (Norton & Siegel
v. Nolan, 276 NY 392) or a judgment which denied him
some affirmative claim or substantial right (City of Rye
v Public Serv. Mut. Ins. Co., 34 NY2d 470). But where
the successful party has obtained the full relief sought,
he has no grounds for appeal or cross appeal (Matter
ofBayswater Health Related Facility v. Karagheuzoff,
37 NY2d 408, 413). T his is so even where that party
disagrees with the particular fmdings, rationale or the
opinion supporting the judgment or order below in his
favor (Matter of Zaiac, 279 NY 545, 554), or where he
failed to prevail on all the issues that had been raised . ..
60 N.Y.2d at 544-45.
The purpose of the predecessor's application was to obtain an increase in
22
the legal regulated rents of the building. See Rent Stabilization Code
§2522.4(a)(2). As correctly stated by the Appellate Division, the predecessor
received the full increase requested. The prior MCI Order, therefore, was not
appealable. Appellants' claim that somehow the predecessor was aggrieved by
speculative notions of whether future owners might need to perform work on the
exterior walls does not constitute the conditions which would have permitted an
appeal of that Order. The predecessor's purpose in bringing the application was to
receive a rental increase, not to obtain a certain useful life time period. This was
completely fulfilled upon the granting of a rental increase based upon the full
amount of the cost of the MCI claimed.
Further, the Appellate Division recognized that DHCR had valid
grounds for moving to remit in order to reconsider the issue of the instant MCT
application for a rental increase for the Owner's resurfacing of the subject building.
Thus the Appellate Division's majority opinion stated:
Moreover, the court should not have effectively annulled
DHCR's reconsideration of the MCI issue and precluded it on
remand from resolving the discrepancy between the 1995
and 1998 orders as to the nature of the work performed on
the building which justified the 1995 grant of an MCI in-
crease. DHCR has the authority to apply its expertise to the
question of Owner's entitlement to a subsequent MCI
rent increase. Although the Rent Administrator's 2011 order
largely rejected Owner's MCJ application and conclusorily
disregarded the discrepancy between the 1995 and 1998
orders, the subsequent challenged order used the language
of the 1998 order in describing the First Project as water-
23
proofing and pointing. DHCR correctly viewed those
several orders as so inconsistent and unclear about this
matter as to constitute an irregularity in a vital matter,
warranting a remand (see Rent Stabilization Code [9
NYCRR] §2527 .8; see also Matter of Atkinson v Division
ofHous. & Community Renewal, 280 AD2d 326, 720 N.Y.S.
2d 463 [1st Dept 2001 ]).
It is clear that the existence of inconsistencies of such administrative orders
issued by the same agency makes it inappropriate to give preclusion to one order
merely because it was issued earlier. Thus in Sherwood 34 Assoc. v. DHCR, 309
AD2d 529, 532 765 N.Y.S.2d 592 (1 st Dept 2003) this Court stated:
Contrary to the determination of the lAS court,
application of the doctrine of res judicata is not
appropriate where there are two directly conflicting
DHCR decisions as to DHCR's jurisdiction over
the same building, each of which could arguably have
preclusive effect on subsequent matters. How the
DHCR could have found so conclusively in 1987
that the building was an HMD, and thus subject to
DHCRjurisdiction and the Rent Stabilization Law,
and one year later, determine the contrary with
regard to the same building is unexplained, as the
court noted in the Trieber eviction proceedings. In
addition, although the November 14, 2000 order
asserts that the Schwedock order is entitled to greater
weight than the Treiber order, neither order indicates
the factual basis for its ultimate conclusion and both
are, consequently, of continuing questionable validity.
While Appellants, as well as the dissent to the majority decision of the
Appellant Division portray the discrepancies in the various administrative orders as
not worthy of reconciling or examination, it is nonetheless true that no real analysis
24
of the underlying nature of the work performed under the prior MCI Order exists.
Appellants rely merely on language contained in the four fragmented terms
constituting the item rather than anything else. Unfortunately, DHCR appears to
have done the same during the course of the administrative proceeding. Thus, the
majority opinion of the Appellate Division quoted above states that DHCR, with
regard to one of the earlier orders, "conclusorily" disregarded any discrepancy.
As DHCR stated in its replies to opposition to its motions to remit (seeR.
191-198), such failures to give explanation or any indication of adequate review
constitute the errors that Courts had in mind in approving motions to remit. While
the Appellate Division has narrowed the issues which DHCR may reconsider on
remand from those originally requested by the agency, the remaining issues
constitute proper targets for remit.
Thus, in Porter v. DHCR, 51 A.D.3d 417,857 N.Y.S.2d 110 (P1 Dept.
2008) lv to appeal denied, 11 N.Y.S.3d 703, 864 N.Y.S.2d 390 (2008), the Court
stated in affirming a grant of motion to remit by DHCR:
Here, DHCR has conceded that its review of several
issues raised by the tenants was inadequate, including
whether the owner's plans constitute a demolition under
the Rent Stabilization Law, whether certain protections
of the Loft Law extend to these rent-stabilized tenancies,
and whether the owner was obligated to timely obtain a work
permit or offer lease renewals prior to DHCR's determination
of the instant demolition application ...
25
Appellants cite this Court's decision in Peckham v. DHCR, 12 N.Y.3d 424,
883 N.Y.S.2d 751 (2009) to oppose the Appellate Division's Order modifying
the grounds for remanding this proceeding to DHCR. Thus, Appellants claim that
the question of the nature of the work performed under the prior MCI Order issued
in 1995 is only relevant for purposes of a "novel legal theory" proposed by the
Owner and not before adopted by DHCR.
However, with regard to Peckham, it clear that part of the basis for the
reversal of the lower court's decision to remand the proceeding was that DHCR's
PAR order in that proceeding had a rational basis, a characterization that
Appellants are not prepared to give to the determination under review here. See
Peckham, 12 N.Y.3d at 432.
This matter is clearly distinguishable from Peckham. The purpose of the
Appellate Division's remit here was to pennit DHCR to determine the factual issue
of the nature of the work under the prior MCI Order and the legal consequences
under the existing regulations. Peckham was a remit for the purpose of examining
the then existing legal standard and to change it. It is only the Appellants'
speculation and its own theory that the result of a remit will create some sort of
new standard for approving MCI increases, if indeed an increase was found
warranted. Nothing in the Appellate Division's Order directs DHCR to create or
clarify a new lega.l standard. DHCR must interpret the existing standards and apply
26
it to this case. DHCR is, of course, entitled to weigh the factual evidence and
determine what inferences to draw from it. Wembly Management Co. v. DHCR,
205 A.D.2d 319, 613 N.Y.S.2d 7 (1 st Dept. 1994), lv. den. 85 N.Y.2d 808, 628
N.Y.S.2d 50 (1995). DHCR will be entitled to make a determination based on the
evidence available, and as long as the evidence is sufficient to provide a rational
basis for the determination a court may not overturn it. Mid-State Management
Corp. v. Conciliation and Appeals Bd., 112 A.D.2d 72, 491 N.Y.S.2d 634 (1st
Dept. 1985), affd 66 N.Y.2d 1032,499 N.Y.S.2d 398 (1985).
While Appellants speak of the great length of time that this matter has been
in litigation, as Appellants are aware, DHCR has stipulated that it will issue its
determination on remand within sixty-five days after the entry of the decision by
the Court of Appeals, unless this Court orders otherwise. Copies of the stipulations
are attached to Appellants' letter submission to this Court.
In requesting that this Court affirm the Appellate Division's order, DHCR
is mindful ofits charge under Rent Stabilization Law §26-Sll(c) (6) (b) and
the Rent Stabilization Code 9 N.Y.C.R.R. § 2522.4(a)(2) to utilize its expertise in
evaluating whether claimed work or installations constitutes a major capital
improvement for which a permanent adjustment upward in the legal rent of
regulated tenants. The purpose of such increases, where warranted, has been
expressed by this Court in Ansonia v. DHCR, 75 N.Y.2d 206, 551 N.Y.S.2d 871
27
(1989). This Court found that these permanent increases serve "the purpose of the
Rent Stabilization Law by providing Owners with an incentive to make
improvements which benefit owners and tenants alike." See Ansonia, 75 N.Y.2d at
216. However, DHCR is also charged under Rent Stabilization Code Section
2522.7 with "protecting tenants and the public interest against unreasonably high
rent increases inconsistent with the purposes of the RSL . ... " DHCR, therefore,
intends to fulfill its charge under these sections in determining what if any increase
should be granted.
CONCLUSION
DHCR, therefore, requests that this Court affirm the order of the Appellate
Division.
Respectfully submitted,
New York State Division of
Housing and Community Renewal
Mark F. Palomino
Counsel
28
ack Kuttner
ack.kuttner@nyshcr.org
(212) 480-7439