Richard Altman, Respondent,v.285 West Fourth LLC, Appellant.BriefN.Y.March 22, 2018To be Argued by: JEFFREY TURKEL (Time Requested: 30 Minutes) APL-2017-00054 New York County Clerk’s Index No. 155942/14 Court of Appeals of the State of New York RICHARD ALTMAN, Respondent, – against – 285 WEST FOURTH LLC, Appellant. REPLY BRIEF FOR APPELLANT Of Counsel: JEFFREY TURKEL BLAINE Z. SCHWADEL MARK L. AMSTERDAM MARK LEWINTER JOSEPH P. MITCHELL ROSENBERG & ESTIS, P.C. 733 Third Avenue New York, New York 10017 Tel.: (212) 867-6000 Fax: (212) 551-8484 – and – AMSTERDAM & LEWINTER, LLP 9 East 40th Street, 11th Floor New York, New York 10016 Tel.: (212) 725-6100 Fax: (212) 725-4799 Attorneys for Appellant TABLE OF CONTENTS Page PRELIMINARY STATEMENT 1 ARGUMENT 2 POINT I THE SUBJECT APARTMENT HAS BEEN LAWFULLY DEREGULATED PURSUANT TO RSL § 26-504.2 2 A. The Statute and its Legislative History Establish that the Subject Apartment has been Deregulated Under the Second Clause of RSL § 26-504.2(a) The Subject Apartment was Vacant for Purposes of Vacancy Deregulation under RSL § 26-504.2 The First Department has Overruled Altman I Sub Silentio DHCR’s Longstanding Interpretation of the Second Clause of RSL § 26-504.2(a) is Correct The 2015 Amendments to the RSL do not Support Tenant’s Interpretation of the Second Clause Owner has Made no “Dire Predictions” 2 B. 7 C. 13 D. 17 E. 19 F. 22 POINT II THE $165,363.80 OVERCHARGE AWARD IS IMPROPER 23 There was no Fraud Herein, and thus no Basis for Breaching the Four-Year Look-Back Period A. 23 B. Owner Established that Any Overcharge was not Willful There is no Basis for a Rent Freeze Based on Failure to Register Interest cannot be Imposed on Treble Damages Until the Date of Supreme Court’s Judgment 26 C. 27 D. 28 CONCLUSION 30 CERTIFICATE OF COMPLIANCE 31 -i- RE\16950\0001\2208876v3 TABLE OF AUTHORITIES Page(s) Cases 126 W. 25th St. Realty Co. v Chea, 40 Misc 3d 141(A) (App Term, 1st Dept 2013) 132132 LLC v Strasser, 19 Misc 3d 658 (Civ Ct, NY County 2008, Capella, J.), ajfd 24 Misc 3d 140(A) (App Term, 1st Dept 2009) 18 St. Marks Place Trident LLC v New York State Div. of Hous. & Community Renewal, 149 AD3d 574 (1st Dept 2017) 233 E. 5th St. LLC v Smith, 54 Misc 3d 79 (App Term, 1st Dept 2016) 9037 Realty LLC v Jaramillo, (Civ Ct, Queens County, L&T Index No. 51115/16, issued May 12, 2017) Aimco 322 E. 61st St., LLC v Brosius, 50 Misc 3d 10 (App Term, 1st Dept 2015) Altschuler v Jobman 478/480, LLC, 135 AD3d 439 (1st Dept 2016), Iv dismissed 28 NY3d 945 (2016), Iv denied 29 NY3d 903 (2017) Borden v 400 E. 55th St. Assoc., L.P., 24 NY3d 382 (2014) Bradbury v 342 W. 30th St. Corp., 84 AD3d 681 (1st Dept 2011) Chekowsky v Windemere Owners LLC, 114 AD3d 541 (1st Dept 2014) 9,15 10, 12 4, 13, 15, 16 5,24 5, 14 4,21 24 26 27 4 Commonwealth of the N. Mariana Is. v Canadian Imperial Bank of Commerce, 21 NY3d 55 (2013) 3 -ii- RE\16950\0001\2208876v3 Dixon v 105 W 75th St. LLC, 148 AD3d 623 (1st Dept 2017) Ernest & Maryanna Jeremias Family Partnership, LP v Matas, 39 Misc 3d 1206 (Civ Ct, Queens County, 2013) In Matter of Albany Law Sch. v New York State Off. of Mental Retardation & Dev. Disabilities, 19 NY3d 106 (2012) Jazilek v Abort Holdings LLC, 10 NY3d 943 (2008), on remand 72 AD3d 529 (1st Dept 2010) Jemrock Realty Co. v Krugman, 13 NY3d 924 (2010), on remand 72 AD3d 438 (1st Dept 2010) Knight-Ridder Broadcasting Co. v Greenberg, 70 NY2d 151 (1987) Matter of Boyd v New York State Div. of Hous. & Community Renewal, 23 NY3d 999 (2014) Matter of Ghigone v Joy, 83 AD2d 839 (1st Dept 1981), ajfd 55 NY2d 853 (1982) Matter of Veltri v Joy, 55 AD2d 529 (1st Dept 1976), ajfd for reasons stated below 43 NY2d 660 (1977) McSweeney v Bazinet, 269 AD 213 (3d Dept 1945), ajfd 295 NY 797 (1946) Mohassel v Fenwick, 5 NY3d 44 (2005) Nostrom vA.W. Chesterton Co., 15 NY3d 502(2010) 13, 16 25 2 12, 13, 27 6,21 21 23 9 9, 10 3 29 2 - iii - RE\16950\0001\2208876v3 Oren Apts., LLC v Torres, (Civ Ct, Queens County, L&T Index No. 67038/16, issued April 24, 2017) Park v New York State Div. of Hous. & Community Renewal, 150 AD3d 105 (1st Dept 2017) People v Thompson, 26 NY3d 678 (2016) Roberts v Tishman Speyer Props., L.P., 13 NY3d 270 (2009) Stulz v 305 Riverside Corp., 150 AD3d 558 (1st Dept 2017) Tennant v Skyline Mgt. Corp., 85 AD3d 557 (1st Dept 2011) Thornton v Baron, 5 NY3d 175 (2005) Todres v W7879, LLC, 137 AD3d 597 (1st Dept 2016), Iv denied 28 NY3d 910 (2016) Statutes 5, 14 13, 16, 23, 28 2 5, 22, 24, 25, 26 23,26 7, 8,15 26 24, 27 Local Law No. 13 of 1997 17, 18, 20 Rent Act of 2011 (L 2011, ch 97, pt B) Rent Act of 2015 (L 2015, ch 20, pt A) Rent Act of 2015, Section 10 19 19 19 RRRA-93 17 RRRA-97 3,4, 14, 17, 20, 22 RSL§ 26-504.2 RSL § 26-504.2(a). RSL § 26-504.2(b) 2, 8, 9, 17, 20 2,3, 8, 11, 14, 15, 17, 18, 19,21,22 27 -iy. RE\16950\0001\2208876v3 Vacancy Decontrol Law (L 1971, ch 371). 9 Regulations RSC§ 2520.1l(r)(10)(i) RSC§ 2520.1l(r)(8)(i).., 17, 24 17 Treatises McKinney’s Cons Laws of NY, Book 1, Statutes § 235 Other Authorities 3 Governor’s Mem approving L 1997, ch 116, 1997 NY Legis Ann at 76 Senate Introducer’s Mem in Support, L 1997, ch 116 4 4 - v - RE\16950\0001\2208876v3 PRELIMINARY STATEMENT Owner submits this brief (i) in further support of its appeals from the April 28, 2015 and October 4, 2016 orders of the Appellate Division, First Department in Altman I and Altman II; and (ii) in reply to the July 13, 2017 brief of Tenant.1 Capitalized terms shall have the same meaning as in Owner’s Main Brief (Main Br.). RE\16950\0001\2208876v3 ARGUMENT POINT I THE SUBJECT APARTMENT HAS BEEN LAWFULLY DEREGULATED PURSUANT TO RSL 8 26-504.2 A. The Statute and its Legislative History Establish that the Subject Apartment has been Deregulated Under the Second Clause of RSL S 26-504.2(a) This case is about how RSL §26-504.2(a) is to be interpreted. In Matter of Albany Law Sch. v New York State Off. of Mental Retardation & Dev. Disabilities, (19 NY3d 106, 120 [2012]), this Court summarized the cardinal principles of statutory interpretation: “our primary consideration is to discern and give effect to the Legislature’s intention. As we have repeatedly stated, the text of a provision is the clearest indicator of legislative intent and courts should construe unambiguous language to give effect to its plain meaning. Additionally, we should inquire into the spirit and purpose of the legislation, which requires examination of the statutory context of the provision as well as its legislative history” (internal citations and quotation marks omitted). (See also People v Thompson,26 NY3d 678, 685 [2016]; Nostrom vA.W. Chesterton Co., 15 NY3d 502, 507 [2010]). Addressing the statutory text, Tenant conclusorily alleges that the second clause of RSL § 26-504.2(a) “must mean” that to effect deregulation, the rent had to be $2,000 or more per month “ at the moment of the vacancy.” (Brief for Respondent (Br.) at p. 13). Tenant similarly claims that the $2,000 deregulation threshold refers -2- RE\16950\0001\2208876v3 to “the rent that the departed tenant was paying at the time he left (id at p. 14). Tenant’s interpretation is wrong. According to Tenant, the first and second clauses of RSL § 26-504.2(a) mean exactly the same thing: The rent must be $2,000 or more per month at the time the outgoing tenant vacates. The two clauses, however, enacted at different times by different legislative bodies (Main Br. at pp. 8-13), use two different phrases to describe how and when deregulation takes effect: ‘“Housing accommodations’ shall not include any housing accommodation which becomes vacant on or after April first, nineteen hundred ninety-seven and where at the time the tenant vacated such housing accommodation the legal regulated rent was two thousand dollars or more per month, or any housing accommodation which is or becomes vacant on or after the effective date of the rent regulation reform act of 1997 with a legal regulated rent of two thousand dollars or more per month” (material added by RRRA-97 indicated by underscoring). It cannot be that “where at the time the tenant vacated” (the first clause) and “with” (the second clause) mean the same thing. When different terms are used in various parts of a statute, it is reasonable to assume that a distinction between them is intended (see Commonwealth of the N. Mariana Is. v Canadian Imperial Bank of Commerce, 21 NY3d 55, 63 [2013]). In addition, the two clauses are separated by the word “or.” As used in a statute, “or” is a disjunctive particle indicating an alternative (see McSweeney v Bazinet, 269 AD 213, 216 [3d Dept 1945], ajfd 295 NY 797 [1946]; McKinney’s -3- RE\16950\0001\2208876v3 Cons Laws of NY, Book 1, Statutes §235). Tenant’s characterization of the “choice” - that the rent must be $2,000 or more per month “at the time the tenant vacated” (the first clause) or “at the moment of the vacancy” (the second clause) - is no choice at all. Tenant complains that the second clause does not say that post-vacancy increases can be used to reach the deregulation threshold (Br. at p. 13). The legislative history of the RRRA-97, however, establishes that this is exactly what the Legislature intended. The New York State Introducer’s Memorandum in Support of the RRRA-97 states that “vacancy bonuses and owner improvements” shall be “considered in reaching the $2,000 threshold.” (Senate Introducer’s Mem in Support, L 1997, ch 116). The Governor’s Approval Memorandum similarly states that “vacancy allowances and increases attributable to apartment improvements” shall be “considered in determining whether the $2,000 threshold was reached.” (Governor’s Mem approving L 1997, ch 116, 1997 NY Legis Ann at 76). Numerous courts, including the First Department in 18 St. Marks Place Trident LLC v New York State Div. ofHous. & Community Renewal, (149 AD3d 574 [1st Dept 2017]) and Chekowsky v Windemere Owners LLC, (114 AD3d 541 [1st Dept 2014]), have interpreted the second clause as deregulating apartments where statutory vacancy increases and/or individual apartment improvement (IAI) increases raise the rent above the deregulation threshold (see e.g. Aimco 322 E. 61st -4- RE\16950\0001\2208876v3 St., LLC v Brosius, 50 Misc 3d 10, 11 [App Term, 1st Dept 2015]; Oren Apts., LLC v Torres, (Civ Ct, Queens County, L&T Index No. 67038/16, issued April 24, 2017)); 9037 Realty LLC v Jaramillo, (Civ Ct, Queens County, L&T Index No. 51115/16, issued May 12, 2017)). In 233 E. 5th St. LLC v Smith, (54 Misc 3d 79, 80-81 [App Term, 1st Dept 2016]), Appellate Term observed that: “we do not interpret the contents of a single sentence in the decision in Altman v. 285 W. Fourth, LLC, 127 AD3d 654 [2015] so broadly as to effectuate a sea change in nearly two decades of settled statutory and decisional law— that allowed an owner to deregulate an apartment after vacancy, if the legal rent plus any lawful increases and adjustments to the rent, such as the vacancy allowance, exceeded $2,000” (emphasis added). Longstanding DHCR precedent is to the same effect (see Main Br. at Point I[E]). Tenant dismisses the legislative history as “irrelevant” (Br. at p. 13) and wagers all on this Court’s statement in Roberts v Tishman Speyer Props., L.P., (13 NY3d 270 [2009]) that vacancy deregulation applies “in vacant apartments where the legal regulated rent was $2,000 per month or more” (Br. at pp. 13-14). There are two problems with Tenant’s reliance on this statement. First, Roberts concerned the availability of both vacancy and high-income deregulation where a building is receiving J-51 benefits. The actual mechanics of vacancy deregulation, i.e.,when the rent must exceed the threshold, were not at issue therein. Second, to the extent that this Court commented on vacancy deregulation in Roberts, -5- RE\16950\0001\2208876v3 the Court more tellingly stated that “the Legislature subsequently expanded the scope of luxury decontrol by ... allowing postvacancy improvements to count toward the $2,000 per month threshold (L 1997, ch 116)” (13 NY3d at 281). Far more relevant is this Court’s ruling in Jemrock Realty Co. vKrugman, (13 NY3d 924 [2010], on remand 72 AD3d 438 [1st Dept 2010]), a case Tenant does not mention. There, (i) the legal rent for the apartment at the time of the vacancy was $920.12 per month; and (ii) the rent thereafter increased by 36.6% to $1,247.68 based on a 20% vacancy allowance and 16.6% in longevity increases (72 AD3d at 439). Addressing the issue of whether the apartment was vacancy deregulated under those facts, this Court remanded the matter to the First Department to determine: “the factual issue of whether the landlord’s expenditures for ‘improvements’ were at least equal to the amount (approximately $30,000) necessary to bring the legal rent above the luxury decontrol threshold” (emphasis added). (13 NY3d at 926). The pre-IAI rent of $1,247.68 in Jemrock Realty, if increased by “approximately $30,000” in IAI increases (i'.e., $750, or 1/40th of $30,000) is $2,000. Accordingly, this Court necessarily held that an apartment will be vacancy deregulated where vacancy increases, longevity increases, and/or IAI increases raise the rent above the deregulation threshold (see Main Br. at 28-29). -6- RE\16950\0001\2208876v3 B. The Subject Apartment was Vacant for Purposes of Vacancy Deregulation under RSL § 26-504.2 Tenant concedes that his predecessor (rent stabilized tenant of record Keno Rider) permanently vacated and surrendered the apartment in March of 2005 pursuant to a court-ordered stipulation (R. 25, 40). Tenant also concedes that based on Rider’s permanent vacatur, Owner’s predecessor was entitled to collect a 20% vacancy increase from Tenant pursuant to RSL § 26-51l(c)(5-a) (R. 28). The First Department, in both Altman I (R. 483) and Altman //(R. 489), agreed. Altman nevertheless argues that because he lived in the apartment both before (as a subtenant) and after (as a prime tenant) Keno’s permanent vacatur, there was never a vacancy or a “hiatus in possession” for purposes of vacancy deregulation (Br. at pp. 2, 11, 16, 17). Tenant is wrong. At the outset, the First Department rejected Tenant’s theory in Altman I. Tenant prevailed on the issue of stabilization status because the First Department ruled that the 20% vacancy increase to which Owner’s predecessor was entitled (R. 483) could not be used to increase the rent above $2,000 per month for purposes of deregulation; the Court did not hold that there had been no vacancy. The Court would have said so had it so ruled, and would have had no occasion to opine as to whether post-vacancy increases can be used to reach the deregulation threshold. The First Department rejected this same argument in Tennant v Skyline Mgt. Corp., (85 AD3d 557 [1st Dept 2011]). There, Anne Mitchell was the rent-stabilized -7- RE\16950\0001\2208876v3 tenant of record of the apartment in question.2 Mitchell sublet the apartment in 2004 to plaintiffs Tennant and Turnbull. After Mitchell permanently vacated in 2008, plaintiffs held over and commenced an action seeking a declaration that they were now the lawful stabilized tenants. The owner asserted that the apartment was deregulated under RSL § 26-504.2 because (i) there was a vacancy when Mitchell left, even though plaintiffs remained in possession; and (ii) the monthly rent at the time Mitchell vacated was above $2,000. The First Department, affirming Supreme Court, agreed: “The record establishes that plaintiffs are not entitled to become the recognized rent-stabilized tenants of the subject apartment. It is undisputed that when plaintiffs subtenants initially took possession in 2004, the legal monthly rent exceeded $2,000. Accordingly, upon vacatur of the apartment by the registered tenant, plaintiffs were only entitled to receive a deregulated lease (see Administrative Code of City of NY RSL § 26- 504.2[a])” (emphasis added). Thus, the First Department held that there had been a vacancy for purposes of RSL § 26-504.2, even though plaintiffs occupied the apartment both before and after Mitchell’s vacatur. Because the tenant of record permanently relinquished possession -- as did Rider herein — there was a “hiatus of possession” as a matter of law.3 2 The facts in Tennant are set forth in respondent’s April 20, 2011 brief therein (brief for respondent, available at 201 1 WL 12464572, *7). 3 The fact that the rent in Tennant was over $2,000 at the time the vacating tenant moved out is of no moment. No one has ever disputed that vacancy deregulation will occur if the rent is -8- RE\16950\0001\2208876v3 Similarly, in 126 W. 25th St. Realty Co. v Chea, (40 Misc 3d 141(A) [App Term, 1st Dept 2013]), the putative tenant, as here, first took possession of a rent stabilized apartment as a subtenant. After the prime tenant permanently vacated, the owner asserted that the apartment was vacancy deregulated, despite the fact that the subtenant remained in occupancy. Appellate Term, affirming Civil Court, held that the apartment had been vacancy deregulated under RSL § 26-504.2. Again, the Court necessarily held that there had been a vacancy, although at no point was the apartment completely void of occupants. Two “hiatus in possession” cases decided under the Vacancy Decontrol Law (L 1971, ch 371), whereby rent controlled apartments become decontrolled upon vacancy, further prove Owner’s point. In Matter of Ghigone v Joy, (83 AD2d 839 [1st Dept 1981], ajfd 55 NY2d 853 [1982]), the Courts held that vacancy decontrol did not apply where the putative tenant lived in the apartment continuously since her birth in 1942, and remained in occupancy after her parents vacated. In Matter of Veltri vJoy, (55 AD2d 529 [1st Dept 1976], ajfd for reasons stated below 43 NY2d 660 [1977]), the rent controlled tenant (Grabien) rented an apartment pursuant to a lease that allowed him to occupy the unit with one family member. The Courts ruled already $2,000 at the time of vacancy; the issue here is whether post-vacancy increases can be used to meet the deregulation threshold. As to that issue, Owner relies on the statute and its legislative history. The Court in Tennant did not address or decide that issue, such that Tennant cannot be read as supporting Tenant’s interpretation of the second clause. -9- RE\16950\0001\2208876v3 that there was no vacancy decontrol because the family member “occupying as a second person under Grabien’s lease” continued in occupancy “after Grabien left for California” (55 AD2d at 530). Here, the rent stabilized tenant of record -- Rider — permanently vacated and surrendered the apartment (R. 25, 40). Altman was merely Rider’s subtenant. He was not in occupancy under Rider’s lease. He was not a family member of Rider, or Rider’s “successor” in any way. Nor did Rider remain in occupancy when Altman became the prime tenant. The “hiatus in possession” cases do not apply herein. Tenant’s extensive reliance on 132132 LLC v Strasser, (19 Misc 3d 658 [Civ Ct, NY County 2008, Capella, J.], affd as mod 24 Misc 3d 140(A) [App Term, 1st Dept 2009]) is misplaced. There, the tenant (Strasser) had occupied the apartment as the rent stabilized tenant of record for 10 years when the owner alleged that Strasser had illegally altered the unit. Rather than litigate, the owner issued a deregulated lease naming both Strasser and Seamus Touhy (his subtenant) as prime tenants. Strasser, the original tenant of record, continued in occupancy. Civil Court held that there had been no vacancy, such that the apartment had not been deregulated. Appellate Term thereafter affirmed. In Altman I, Supreme Court (Mills, J.) had little difficulty distinguishing 132132 LLC. “In the Strasser case, the original or statutory tenant did not vacate or surrender possession of the apartment at the - 10- RE\16950\0001\2208876v3 time the landlord added a co-tenant and offered the two gentlemen a five-year unregulated lease at a monthly rental of $2,200. In the present case, there is no dispute that the original tenant, Rider, surrendered his rights to the apartment, both on paper and in fact, in March 2005. Although plaintiff, at that time, alleges that he had a continued right to possession of the apartment as the legal subtenant of Rider, his rights as a subtenant were subordinate to Rider’s lease and the sub-tenancy was set to expire on October 31, 2005. The landlord was under no legal obligation to offer him a renewal lease ( see NYC Admin Code § 26- 511[c][12][g] [‘The subtenant shall have no right to a renewal lease.’]). However, plaintiff chose not to litigate the 2005 summary non-payment proceeding to its conclusion. He voluntarily signed the 2005 Stipulation, by which he agreed to the termination of Rider’s tenancy and thus his sub-tenancy, and agreed to enter into a new lease agreement with the then landlord providing for an additional year of occupancy of the apartment. Thus, although plaintiff never actually gave up possession of the apartment, his legal right to occupancy of the apartment changed from that of a subtenant to a prime tenant. Under these circumstances, the Court finds that there was a vacancy within the meaning of section 26-504.2(a) of the New York City Administrative Code” (R. 14-15).4 As Supreme Court found, and as the First Department implicitly held, there was a vacancy herein for purposes of RSL § 26-504.2(a). 4 When Altman, who is an attorney (R. 7), signed the 2005 Stipulation, he did so as attorney for both himself and Rider (R. 23, 42). - 11 - RE\16950\0001\2208876v3 Tenant also relies on 132132 LLC v Strasser to support his related claim that although there is a vacancy (as here) for purposes of a vacancy increase, that same vacancy is insufficient to effectuate vacancy deregulation. In 132132 LLC v Strasser, Civil Court wrote: “there are instances in which a vacancy increase may be taken when there is no vacatur by the original tenant. For example, under the rules of succession, a qualified family member has the right to a rent stabilized renewal lease when the tenant dies or permanently vacates. And under the Rent Regulation Reform Act of 1997, upon vacatur of the succeeding family member, an owner may charge a vacancy increase to the next family member entitled to succeed to the lease. In other words, the right of a family member to receive a renewal lease without being required to pay the owner a vacancy increase is limited to the first family member. Besides succession, the petitioner has provided proof that DHCR permits an owner to take a vacancy increase when a new tenant, who is not a family member, is added to the lease” (internal citations omitted). (19 Misc 3d at 660). Those circumstances are not present herein. Altman is not Rider’s family member or successor, and was not added to Rider’s lease. Rider’s permanent vacatur was a vacancy for purposes of both collecting a vacancy increase and deregulating the apartment. Tenant’s reliance on Jazilek v Abart Holdings LLC, (10 NY3d 943 [2008], on remand 72 AD3d 529 [1st Dept 2010]) is also misplaced. The First Department decision following remand from the Court of Appeals establishes that from 1981 - 12- RE\16950\0001\2208876v3 through 2002, the apartment was rented by a prior tenant under a rent stabilized lease. At the time the prior tenant vacated and surrendered, the legal regulated rent was just $812.34 per month (72 AD3d at 530). After the prior tenant vacated, the owner entered into a stipulation with Jazilek, who had been subletting the apartment. Under the stipulation, Jazilek became the tenant of record pursuant to a purportedly deregulated lease setting forth a rent of $2,200 per month. Because there was no basis for the massive rent increase — the landlord had made no improvements to the apartment, and a vacancy increase would not even increase the monthly rent above $1,000 — the Court of Appeals struck down the stipulation (10 NY3d at 944). The First Department, on remand, affirmed Supreme Court’s finding that the legal stabilized rent was only $974.81 per month (72 AD3d at 531). Here, the vacancy increase alone raised the rent over $2,000 (R. 50). In Jazilek, vacancy deregulation failed because the legal rent never exceeded the deregulation threshold, not because there was no vacancy. As Supreme Court held in Altman /, Jazilek “does not support plaintiffs claim for rent stabilization coverage” (R. 13). C. The First Department has Overruled Altman I Sub Silentio In 18 St. Marks Place, (149 AD3d 574); Dixon v 105 W. 75th St. LLC, (148 AD3d 623 [1st Dept 2017]); and Park v New York State Div. ofHous. & Community - 13 - RE\16950\0001\2208876v3 Renewal, (150 AD3d 105 [1st Dept 2017]), the First Department held that post¬ vacancy increases can be used to raise the rent above the threshold to effect deregulation. These decisions, which are consistent with the language of the second clause of RSL § 26-504.2(a) and the legislative history of the RRRA-97, had the effect of overruling Altman I sub silentio (see Main Br. at Point I [C]). Tenant derides Owner’s argument as “wishful thinking” that “cannot be advanced seriously” (Br. at pp. 24, 27). But at least two courts would disagree. In Oren Apts., LLC v Torres, (L&T Index No. 67038/16), Civil Court wrote: “ Altman was the controlling authority at the time the motion was submitted. However, on April 20, 2017, the Appellate Division [decided] Matter of 18 St. Marks [Place] Trident LLC v State of New York Div. of Hous. & Community Renewal, 2017 NY Slip Op 03042. There the court reversed the Supreme Court’s denial of petitioner’s Article 78 petition which sought to vacate respondent’s determination that an apartment owned by petitioner was not eligible for deregulation. In reaching its decision, the court reasoned that based on the formula used by respondent, which included vacancy and improvement increases, the legal regulated rent was above the $2,000.00 threshold for deregulation.” (material in brackets and emphasis added). (See also 9037 Realty LLC v Jaramillo, Civ Ct, Queens, L&T Index No. 51115/16, issued May 12, 2017). Tenant argues that the three cases are inapposite because there was a vacancy in each one. (Br. at pp. 25-27). As Owner has already established, a vacancy occurred herein for purposes of vacancy deregulation when (i) Rider permanently - 14- RE\16950\0001\2208876v3 vacated and surrendered the subject apartment and returned to California; and (ii) Altman, a mere subtenant with no right to renew, was granted a lease and became the prime tenant (see Tennant, 85 AD3d 557; Chea, 40 Misc 3d 141(A)). In neither Altman I nor Altman II did the First Department hold that there was no vacancy herein. In an attempt to distinguish 18 St. Marks Place, Tenant undermines both Altman I and. his entire interpretation of RSL § 26-504.2(a): “the Court said that ... allowing for both a vacancy increase and 1/40 of ‘the total costs of improving the apartment after the 2008 vacancy,’ the legal regulated rent was over $2,000, and therefore the apartment was deregulated. In the present case, the apartment was never vacant and there were no improvements.” (Br. at p. 26). Putting aside the vacancy requirement, which has been satisfied herein, there is no way to reconcile 18 St. Marks Place with Altman I. In the latter case, the First Department held that there could be no vacancy deregulation where “the rent at the time of the tenant’s vacatur did not exceed $2,000” (127 AD3d at 655). In the former case, vacancy and IAI increases — which can only be applied and collected after the tenant vacates — were permitted to increase the rent above the deregulation threshold to effect deregulation. Nor can 18 St. Marks Place be reconciled with Tenant’s interpretation of the second clause in RSL § 26-504.2(a), which he claims only - 15- RE\16950\0001\2208876v3 permits deregulation where the apartment was $2,000 or more “at the moment of the vacancy.” (Br. at p. 13). Tenant also attempts to distinguish 18 St. Marks Place (as well as Park and Dixon) by claiming that “all of them involve improvements, not just vacancy increases.” (Br. at p. 25). Tenant argues that the “combination” (Br. at p. 16) of vacancy increases and IAI increases can raise the rent beyond the threshold to effect deregulation, but vacancy increases alone (as here) cannot. Tenant’s claim is conclusively refuted in Park (150 AD3d 105). There, the apartment could not have been vacancy deregulated due to the building’s receipt of J-51 benefits. The First Department, however, held that the owner had every right to believe (but for the J-51 issue) that the rent had exceeded the deregulation threshold: “Even though the owner had improperly removed the apartment from rent stabilization in 2005, the legal rent that it could have charged in 2005 under the rent stabilization law easily exceeded the $2,000 threshold required for luxury deregulation. The 2005 vacancy allowance alone brought the rent for the apartment to $2,322.72, an amount that was over the threshold. The owner’s 2004-2005 post-vacancy improvements would have also entitled the owner to increase the rent over the threshold amount, attributable to those IAIs. DHCR rationally concluded that it did not have to consider the bona fides of the IAIs because the permitted vacancy rent increase allowance, by itself, supported luxury decontrol” (internal citations omitted, emphasis added). {Id. at 112-13). - 16- RE\16950X0001\2208876v3 Accordingly, the fact that Owner did not make improvements to the apartment is of no moment; the 20% vacancy allowance alone was sufficient to deregulate the apartment. D. DHCR’s Longstanding Interpretation of the Second Clause of RSL § 26-504.2(a) is Correct At Point II of his brief, Tenant belittles DHCR’S longstanding policy — as codified at RSC § 2520.11(r)(10)(i) 5 - that both vacancy and IAI increases can be used to raise the rent above the deregulation threshold. Tenant’s attack begins regrettably. Tenant rebukes Owner for submitting to this Court a Compendium of relevant DHCR cases, which Tenant claims was “unrequested” and “offers nothing of value.” (Br. at p. 22). Tenant is apparently unaware that pursuant to a June 5, 2017 call from the Clerk’s Office, the Court directed Owner’s counsel to serve and file the Compendium. Tenant’s argument that a court need not defer to DHCR’s interpretation of the statute ignores the fact that DHCR’s interpretation was the impetus for both section 15 of the RRRA-97, by which the Legislature added the second clause of RSL § 26- 504.2(a), and Local Law No. 13 of 1997 (see Main Br. at pp. 8-13). DHCR interpreted the original RSL § 26-504.2, enacted pursuant to the RRRA-93, as allowing post-vacancy increases to push the rent above the $2,000 threshold. Owner’s Main Brief erroneously cited this provision as RSC § 2520.11(r)(8)(i), its pre-2014 designation. - 17- RE\16950\0001\2208876v3 DHCR’s interpretation caused the New York City Council to amend the statute to include, in what is now the first clause, the requirement that the rent must be $2,000 or more “at the time the tenant vacated.” The March 25, 1997 Report of the Committee on Housing and Buildings, which preceded Local Law No. 13, stated in relevant part: “It has been brought to the attention of the Committee . . . that DHCR has misconstrued Local Law No. 4. An example of this is to be found in a DHCR opinion letter dated October 13, 1995, ‘where an owner installs new equipment in a vacant housing accommodation that had a ... legal regulated rent of less than $2000, and where such installation results in an increase in the monthly rental amount to at least $2,000, the lawful ... legal regulated rent will be deemed as having been $2,000 or more and the apartment will be deregulated, provided that the next tenant in occupancy actually rents the housing accommodation for at least $2,000 per month’.” (Local Law No. 13, Report of the Committee on Housing and Buildings, 1997 NYC Legis Ann at 44). Just weeks after the City Council enacted Local Law No. 13, the Legislature added the second clause to RSL § 26-504.2(a), which restored and implemented DHCR’s longstanding interpretation ( see Main Br. at pp. 10-13). The Legislature did not do so out of deference to DHCR, but because DHCR got it right in the first place. - 18- RE\16950V0001\2208876v3 E. The 2015 Amendments to the RSL do not Support Tenant’s Interpretation of the Second Clause Tenant argues in Point V of his brief that the Legislature’s amendments to the RSL pursuant to the Rent Act of 2015 (L 2015, ch 20, pt A) (2015 Act) somehow establish that the second clause in RSL § 26-504.2(a) should be interpreted in the manner Tenant suggests. Tenant’s argument is without merit. The second clause of RSL § 26-504.2(a) governs the deregulation conditions for any apartment “which is or becomes vacant on or after the effective date of the Rent Regulation Reform Act of 1997,” i.e., June 19, 1997. Section 12 of the Rent Act of 2011 (L 2011, ch 97, pt B) (2011 Act) amended the second clause to limit its application to vacancies which occurred on or after June 19, 1997 and “before the effective date of the Rent Act of 2011” i.e., June 24, 2011. It is undisputed that Rider vacated the subject apartment in March 2005 (R. 43). Thus, the second clause, as amended, sets forth the conditions for deregulating the subject apartment. The language upon which Tenant relies, added by Section 10 of the 2015 Act, constitutes a third clause that only applies to an apartment “that becomes vacant on or after the effective date of the rent act of 2015.” Section 10 of the 2015 Act did not amend the second clause at all. Thus, the language added by the 2015 Act — whatever it may mean — does not apply to this case. - 19- RE\16950\0001\2208876v3 The meaning of RSL § 26-504.2, as amended in 2015, can only be determined by its language and legislative history, not by what various tenant attorneys had to say about it. Oddly, Section 10 of the 2015 Act employs two different phrases for describing the conditions for deregulation with respect to apartments subject thereto. The first part of the amendment deregulates apartments “where such legal regulated rent was two thousand seven hundred dollars or more.” The second part deregulates “any housing accommodation with a legal regulated rent that was two thousand seven hundred dollars or more per month at any time on or after the effective date of the Rent Act of 2015, which becomes vacant after the effective date of the Rent Act of 2015” (emphasis added). It is unclear what this language means, or which of the two provisions applies to apartments vacated within the ambit of the 2015 Act. It is sufficient to note, however, that neither provision employs the language “at the time the tenant vacated such housing accommodation” that the City Council employed in Local Law No. 13 of 1997. That language, although obviated by the Legislature two months later pursuant to the RRRA-97, at least had the advantage of being clear. Also without merit is Tenant’s argument that when enacting the 2015 Act, the Legislature somehow endorsed the First Department’s April 2015 decision in Altman I. (Br. at pp. 32-34). This argument would be more persuasive if the legislative -20- RE\16950\0001\2208876v3 history of the 2015 Act so stated — it does not — and if the 2015 Act had amended the second clause in RSL § 26-504.2(a). Tenant provides a truncated quote from Knight-Ridder Broadcasting Co. v Greenberg, (70 NY2d 151 [1987]) to support his arguments relating to the 2015 Act. More relevant is that portion of the quote that Tenant omitted: “Where the interpretation of the statute is well settled and accepted across the State, it is as much a part of the enactment as if incorporated into the language of the act itself. Consequently, any intention to change such a well- established rule must emanate from the Legislature and may not be imputed to the Legislature in the absence of a clear manifestation of such intent” (internal citations omitted). {Id. at 157). Altman I was a non-final decision from an intermediate appellate court. The portion of the decision relevant to Tenant’s argument consists of one sentence, with no analysis. The First Department did not even appear to consider the second clause at all {see Aimco, 50 Misc 3d 10). The First Department’s interpretation was not “well-settled and accepted across the state,” and there are no “uniform judicial decisions interpreting the statute,” at least in the manner suggested by Altman I {Knight-Ridder, 70 NY2d at 157). Indeed, if the Legislature were aware of any decision, it was this Court’s decision in Jemrock Realty (13 NY3d at 926). There, this Court held that under the second clause, both vacancy and IAI increases can be used to raise the rent beyond -21 - RE\16950\0001\2208876v3 the $2,000 per month threshold to effectuate luxury deregulation (see also Roberts v Tishman Speyer Props., L.P., 13 NY3d at 281 [“pursuant to the RRRA-97, “the Legislature . . . expanded the scope of luxury decontrol by allowing postvacancy improvements to count towards the $2,000 per month threshold”]). F. Owner has Made no “Dire Predictions” At Point IV of his brief, Tenant appears to argue that Owner has warned this Court “of dire financial consequences if it dares to rule in favor of tenants.” (Br. at p. 28). Owner, however, has made no such predictions in its Main Brief. Tenant suggests that “the landlord lobby” should “urge its arguments upon the Legislature.” (Br. at p. 30). In fact, the industry did so in 1997, when the Legislature amended RSL § 26-504.2(a) to (i) add the second clause; (ii) roll back the City Council’s amendment; and (iii) conform the statute to the Legislature’s original intent. -22- RE\16950\0001\2208876v3 POINT II THE $165,363.80 OVERCHARGE AWARD IS IMPROPER If this Court determines that the subject apartment was deregulated and reverses Altman /, it must also reverse Altman II. The tenant of a deregulated apartment cannot be overcharged. Should this Court affirm Altman I, Owner respectfully submits that the overcharge award in Altman II must be substantially reduced. A. There was no Fraud Herein, and thus no Basis for Breaching the Four-Year Look-Back Period In post-Roberts cases, courts have declined to hold that an owner’s reliance on DHCR advice that an apartment is deregulated constitutes fraud (see Stulz v 305 Riverside Corp., 150 AD3d 558 [1st Dept 2017] [“the record does not reflect evidence sufficient to raise a question of fact as to defendant’s stated reliance on DHCR’s policy in decontrolling the apartment”]; Park, 150 AD3d at 109 [“the landlord’s belief that it could rely on the luxury decontrol laws to return the apartment to the free market was consistent with the DHCR’s interpretation of the relevant laws and regulations at that time”]). Absent fraud, a court cannot breach the four-year look-back period (see Matter of Boyd v New York State Div. of Hous. & Community Renewal, 23 NY3d -23- RE\16950\0001\2208876v3 999, 1000-01 [2014]). As the First Department recently held in Todres v W7879, LLC, (137 AD3d 597, 598 [1st Dept 2016], Iv denied 28 NY3d 910 [2016]): “the court properly found that defendants did not engage in a ‘fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization’ {Matter of Grimm v. State of N.Y. Div. of Hous. & Community Renewal Off of Rent Admin., 15 N.Y.3d 358, 367 [2010]; see Matter of Boyd v. New York State Div. of Hous. & Community Renewal, 23 N.Y.3d 999 [2014]). Having so found, however, the court should not have looked at the ‘rental history of the housing accommodation prior to the four-year period immediately preceding the commencement of the action’ (CPLR 213- a).” Tenant never alleged fraud below, and declines to address any of these cases. Tenant thus tacitly concedes Owner’s argument that its reliance on RSC § 2520.1l(r)(10)(i), as well as “nearly two decades of settled statutory and decisional law” (233 E. 5th St. LLC v Smith, 54 Misc 3d at 81), does not constitute fraud, such that the four-year look-back period cannot be breached. Tenant erroneously relies on Altschuler v Jobman 478/480, LLC, (135 AD3d 439 [1st Dept 2016], Iv dismissed 28 NY3d 945 [2016], Iv denied 29 NY3d 903 [2017]) for the proposition that the rental history prior to the four-year look-back period can be examined because there was fraud herein. (Br. at pp. 38-39). There, the deregulation failed for two reasons. First, the owner had no good faith basis to rely on DHCR’s advice or the pre-Roberts state of the law (135 AD3d at 440). The apartment was only subject to the RSL by virtue of the receipt of J-51 benefits — as -24- RE\16950\0001\2208876v3 opposed to units that were already stabilized when J-51 benefits were first received -and thus could never have been luxury deregulated. Second, the First Department held that the de minimus $6,296.14 the owner allegedly to have spent on IAIs — which was not supported by sufficient evidence — would never have caused the existing $422.04 rent to exceed $2,000 (id.). Here, Owner properly and transparently relied on DHCR’s advice and the pre- Altman I state of the law (R. 50), and the vacancy increase alone was more than enough to raise the $1,849 rent above the $2,000 threshold (id.). There was no fraud, and thus no basis for breaching the four-year look-back period. Tenant argues that even if Owner’s predecessor deregulated the apartment in good faith in 2005, a February 14, 2007 agreement between Owner and Tenant (R. 60-64) somehow undermines the former owner’s good faith. (Br. at pp. 39-40). Tenant’s speculation — that Owner “had doubts about the legality of the actions of its predecessor” (Br. at p. 40) — cannot overcome the contemporaneous Deregulation Rider attached to Tenant’s first lease, which set forth how the $2,261.25 rent was calculated, and why the apartment was no longer subject to rent stabilization (R. 50). Tenant erroneously relies on Ernest & Maryanna Jeremias Family Partnership, LP v Matas, (39 Misc 3d 1206 [Civ Ct, Queens County, 2013]) as holding that a rent calculation can revert back to a period beyond four years. No such calculation was made therein. Moreover, Civil Court’s reference to this Court’s -25- RE\16950\0001\2208876v3 holding in Thornton v Baron, (5 NY3d 175 [2005]) establishes Civil Court’s error. In Thornton v Baron, where a blatantly fraudulent scheme was found, this Court held that (i) the rent prior to the base date could not be examined’, (ii) the last registered rent was of no relevance; and (iii) a DHCR default formula should instead be used to establish the legal rent. Here, there was no fraudulent scheme, but it is enough to note that even in Thornton v Baron, this Court did not impose the rent penalties that the First Department imposed in Altman II. B. Owner Established that Any Overcharge was not Willful In the post-Roberts case of Borden v 400 E. 55th St. Assoc., L.P., (24 NY3d 382, 398 [2014]), this Court held that where an owner mistakenly deregulates apartment because it followed DHCR’s advice, such reliance does not constitute willful conduct for purposes of assessing treble damages: “As the lower courts noted, treble damages would be unavailable to the tenants because a finding of willfulness is generally not applicable to cases arising in the aftermath of Roberts. For Roberts cases, defendants followed the Division of Housing and Community Renewal's own guidance when deregulating the units, so there is little possibility of a finding of willfulness. Only after the Roberts decision did the DHCR's guidance become invalid” (internal citations omitted). Tenant does not explain why this Court’s analysis should not apply in post- Altman I cases as well. Nor does Tenant cite the post-Altman I cases of Stulz v 305 Riverside Corp., (150 AD3d at 558), wherein the First Department held that an -26- RE\16950\0001\2208876v3 overcharge was “not willful” given an owner’s “stated reliance on DHCR’s policy in deregulating the apartment,” and Todres v W7879, LLC, (137 AD3d at 598 [“the court should not have assessed treble damages”]). Tenant erroneously relies on Jazilek, (10 NY3d 943) for the proposition that treble damages are warranted herein. As Owner has established, the owner in Jazilek made no improvements to the apartment, and the vacancy increase would not have raised the monthly rent above $1,000. Here, it is undisputed that the vacancy increase alone- which both Tenant (R. 28) and the First Department (R. 483, 489) agreed was appropriate herein — brought the rent well above the $2,000 threshold (R. 50). Tenant next asserts that Owner failed to submit any evidence as to lack of willfulness (Br. at p. 45). In fact, the Deregulation Rider, which Owner’s predecessor properly attached to Altman’s first lease pursuant to RSL § 26-504.2(b), set forth exactly how the $2,261.25 rent was calculated, and why Owner’s predecessor and Owner believed the apartment had been deregulated (R. 50). C. There is no Basis for a Rent Freeze Based on Failure to Register Citing Jazilek and Bradbury v 342 W. 30th St. Corp., (84 AD3d 681 [1st Dept 2011]), Tenant asserts that his rent should have been frozen — but for the 20% vacancy increase to which he concedes Owner was entitled — based on the failure to register the apartment as stabilized after 2005 (Br. at p. 49). In both of those cases, -27- RE\16950\0001\2208876v3 however, the owner was unable to establish that the lawful rent had ever exceeded the deregulation threshold. Far more apposite is Park, a post-Altman /case, wherein the First Department recently held: “When the owner treated the apartment as deregulated in 2005 and discontinued rent registrations with DHCR, it did so based on a justifiable belief that the apartment was no longer subject to rent regulation and such filings were unnecessary. Preventing the owner from charging what is otherwise a legal rent, solely based on the lack of registration filings during the period before Roberts and Gersten were decided, would unfairly penalize the owner for action that was taken in good faith, relying upon DHCR’s own interpretation of the law, without furthering any legitimate purpose of the rent stabilization laws...” (150 AD3d at 113). Tenant does not explain why the analysis in Park is in error, or why it should not apply herein. D. Interest cannot be Imposed on Treble Damages Until the Date of Supreme Court’s Judgment Tenant’s claim that he is entitled to “prejudgment interest” (Br. at p. 46) is wrong from the start. The general principle that a prevailing tenant is entitled to “prejudgment interest” is not at issue here. Prejudgment interest relates to the imposition of interest for the period between the determination of the award and the date of the judgment. In this case, the date of the award and the date of the judgment were one and the same. -28- RE\16950\0001\2208876v3 In his spreadsheet (R. 228-29), Tenant awarded himself both treble damages and interest for each and every month during which the award was accruing. In Mohassel v Fenwick, (5 NY3d 44, 50-51 [2005]), this Court held that under the RSL, an award of treble damages is “in lieu of interest,” and prejudgment interest only applies from the date of the award forward to the date of the judgment. Tenant makes no effort to distinguish Mohassel v Fenwick in this regard. -29- RE\16950\0001\2208876v3 CONCLUSION Altman I should be reversed; in the alternative, the money judgment awarded in Altman II should be modified so as to eliminate the rent freeze, treble damages, and the breaching of the four-year look-back period. Respectfully submitted, Dated: New York, New York July 27, 2017 ROSENBERG & ESTIS, P.C. Attorneys for Appellant By: Jeffrey Turkel |[ L 733 Third Avenue f New York, New York lOOh (212) 867-6000 jturkel@rosenbergestis.com AMSTERDAM & LEWINTER, LLP Attorneys for Appellant 9 East 40th Street, 11th Floor New York, New York 10016 (212) 725-6100 jmitchell@amsterdam-lewinter.com JEFFREY TURKEL BLAINE Z. SCHWADEL MARK L. AMSTERDAM MARK LEWINTER JOSEPH P. MITCHELL Of counsel -30- RE\16950\0001\2208876v3 CERTIFICATE OF COMPLIANCE I, Jeffrey Turkel, an attorney for the Appellant 285 West Fourth LLC, hereby certifies that this brief is in compliance with Rule 500.13(c)(1). The brief was prepared using Microsoft Word 2010. The typeface is Times New Roman. The main body of the brief is in 14 pt. Footnotes and Point Headings are in compliance with Rule 500.1. The brief contains 6,925 words as counted by the word processing program. Dated: New York, New York July 27, 2017 / ftJeffry frkel RE\16950\0001\2208876v3