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In re Gilman v. N.Y.S. Div. of Housing

Court of Appeals of the State of New York
Nov 21, 2002
99 N.Y.2d 144 (N.Y. 2002)

Summary

In Gilman, we held that DHCR acted irrationally when it applied an amendment relaxing evidentiary requirements for admission of owner records to permit an owner to reopen the record, nearly a decade after the tenant commenced the proceeding and during the administrative appeal, expressing concern that "the rules were changed in midstream" (99 NY2d at 147, 149-152).

Summary of this case from Regina Metro. Co. LLC v. N.Y. State Div. of Hous. & Cmty. Renewal

Opinion

No. 133

Decided November 21, 2002.

Appeal from an order of the Appellate Division of the Supreme Court in the First Judicial Department, entered January 15, 2002, which, with two Justices dissenting, (1) reversed, on the law, an order and judgment (one paper) of the Supreme Court (Michael Stallman, J.), entered in New York County in a proceeding pursuant to CPLR article 78, granting a petition to review a determination of the Division of Housing and Community Renewal, vacating a determination of the Deputy Commissioner of the Division that modified a Rent Administrator's finding of excess rent and ruled in favor of respondent landlord on the basis of comparability data previously precluded as unqualified, and remanding the matter to the Division for reconsideration, (2) denied the petition, and (3) reinstated and confirmed the determination of the Deputy Commissioner.

Robert E. Levy, for appellant.

Sheldon Melnitsky, for respondents.

Chief Judge Kaye and Judges Smith and Ciparick concur.


In this proceeding brought by petitioner-tenant to determine the proper initial rent for her rent-stabilized apartment, the Division of Housing and Community Renewal (DHCR) overturned the Rent Administrator's determination and set a higher initial rent based on data first submitted by the owner on appeal nearly a full decade after the tenant commenced her proceeding. We conclude that at that stage DHCR should not have accepted the owner's evidence without any showing of good cause.

In 1990, Anne Gilman moved into an apartment previously subject to rent control and exercised her right to seek readjustment of the $2,095 stabilized rent by commencing a Fair Market Rent Appeal (FMRA). For no apparent reason, it took two years before DHCR notified the building owner of Gilman's pending FMRA. Thereafter, the owner requested a FMRA answering package and indicated its intention to file comparability data — proof of rents for similar apartments. DHCR inexplicably failed to send the forms until Gilman filed an article 78 mandamus proceeding to compel the agency to resolve her FMRA. Faced with the mandamus proceeding, on April 4, 1994, DHCR provided the owner an answering package with a Notice of Clarification attached. The notice explained that the owner could submit comparability data for use in determining the apartment's fair market rent. If the owner failed to submit the data, the Rent Administrator would be required to calculate the fair market rent based solely on a rent guidelines formula (see Matter of Ullman Estates v. New York City Conciliation Appeals Bd., 97 A.D.2d 296, 298 [1st Dept 1983], affd 62 N.Y.2d 758). The notice also explained that when an owner submitted rents from other rental units, they had to be "legal rents." To establish "legal rents" for comparable rent-stabilized apartments, the owner had to show that notice of the stabilized rent "was served on the first rent stabilized tenant" and that the notice "was not challenged within ninety (90) days of receipt thereof, * * *." Even though DHCR granted the owner an extension of time to gather the proper documentation, the owner submitted no comparability data.

The parties resolved that proceeding by stipulating that DHCR would issue a determination within 90 days.

In 1983, the Legislature overhauled the rent regulatory system; the changes became effective April 1, 1984 ( see L 1983, ch 403). The owner of an apartment subject to rent stabilization was required under the new system to complete and file a rent registration with DHCR that listed the rental rate ( see § 26-517[a],[g]). For an owner to use rental units stabilized prior to April 1, 1984 as legal comparables, it had to prove that the registration had been provided to the tenant. For units stabilized after that date, proof of service of notice of the "initial legal regulated rent" was required ( see Rent Stabilization Code § 2523.1). This proceeding involves only post April 1, 1984 comparables .

If the tenant had timely challenged the notice or registration, the owner was also required to establish that the challenge had been resolved with an Order and Determination from the Division.

On July 22, 1994, the Rent Administrator issued an order setting the initial legal regulated rent, based solely on the guidelines, at approximately $1000 per month less than the amount originally charged by the owner. The owner then timely filed a petition for administrative review (PAR) of the Rent Administrator's decision. The owner objected to DHCR's refusal to grant more time to obtain the proper documentation, but did not seek to have those documents included in the appellate record.It also never indicated that the documents did not exist. Gilman opposed the PAR and objected to the introduction of any new evidence.

Nothing happened in the PAR proceeding for five years. In June 1999, DHCR notified the owner that as a result of the Rent Regulation Reform Act (RRRA) of 1997, it had a final opportunity to submit comparability data. Within 20 days, the owner submitted a list of rents for several apartments in its building together with the leases for those apartments. DHCR then notified Gilman on June 20, 1999 that the owner had submitted comparability data "in accordance with the Rent Regulation Reform Act of 1997 applicable to all pending cases" and provided her an opportunity to comment. In a pro se submission, Gilman answered the notice and contested the introduction of the new data. She argued that new evidence could not be submitted for the first time at the PAR level and claimed that the "failure to submit rent records previously was inexcusable given that the records were in landlord's control at all times. * * * There is no valid excuse for landlord to have failed to provide this information until seven years after landlord received the FMRA from the DHCR and five years after the initial determination of the FMRA."

DHCR's Deputy Commissioner ruled that the new data "submitted by the owner pursuant to the Rent Regulation Reform Act of 1997 must be reflected in the determination of the fair market rent," and it calculated a new rent for the apartment based on that data. The newly adjusted rent resulted in Gilman owing the owner over $47,000 for back rent. Gilman commenced this CPLR article 78 proceeding to annul DHCR's determination, arguing that the RRRA of 1997 did not affect the regulations governing FMRAs or PARs. Supreme Court granted Gilman's petition, but the Appellate Division reversed with two Justices dissenting.

On appeal, Gilman asserts that DHCR erred when it determined that the RRRA of 1997 affected the proof requirements for comparability data in a FMRA and that the agency was precluded from considering the owner's comparability data at the PAR level. Because the DHCR regulations require a showing of good cause to introduce new evidence at the PAR level, and no such showing was made in this case, we conclude that DHCR's determination should be annulled and a new hearing held.

In reviewing an administrative agency determination, we must ascertain whether there is a rational basis for the action in question or whether it is arbitrary and capricious (see e.g. Matter of Nehorayoff v. Mills, 95 N.Y.2d 671, 675). We conclude that the RRRA of 1997 is applicable to FMRAs. Although the legislation amended only that section of the Rent Stabilization Law (§ 26-516) dealing with overcharge complaints, a FMRA is a procedural vehicle for a tenant to claim an overcharge in the initial stabilized rent. Furthermore, the overcharge complaint provisions of the statute do affect "initial legal regulated rents" which tenants seek to readjust in FMRAs (see Rent Stabilization Code § 2522.3; Matter of Muller v. New York State Div. of Hous. Community Renewal, 263 A.D.2d 296, 302- 303 [1st Dept 2000], lv denied 95 N.Y.2d 763). Thus, when reading the statute as a whole, the RRRA of 1997 does apply to FMRAs.

The RRRA clarified and reinforced the four-year statute of limitations in rent overcharge claims and limited "examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint" (see L 1997, ch 116, § 33). DHCR rationally concluded that the statute also, in effect, eased the legal sufficiency requirements for comparability data by removing the strict proof of notice requirements as a collateral issue in identifying comparables in rent overcharge claims and fair market rent appeals. The legislation was designed to alleviate the burden on owners to retain that paperwork indefinitely. The four-year rule simplified the process (see Governor's Mem approving L 1997, ch 116, 1997 McKinney's Session Laws of New York, at 1923 ["A number of regulatory reforms are included in the legislation to simplify the administration of rent laws while protecting the rights of tenants and owners"]).

The Legislature specifically directed that the RRRA of 1997 apply toall cases pending before the DHCR. The agency acted rationally when it informed owners of the new legislation and its effect on comparability data. The new statute, however, said nothing about the wholesale introduction of new evidence at the appellate level.

In this case, DHCR acted irrationally in allowing new comparability data at the PAR level without any showing that this owner could not have earlier provided that information. We agree with the dissenters at the Appellate Division that DHCR's decision to reopen the record and accept new comparability data at the appellate level was contrary to DHCR's rules governing PAR proceedings (see Matter of Gilman v. New York State Div. of Hous. Community Renewal, 290 A.D.2d 280 [1st Dept 2002][Rubin, J., dissenting]).

The acceptance of new evidence on appeal is generally contrary to appellate practice simply because it is unfair to allow a party, on appeal, to rewrite the factual record in the proceeding. Consistent with this principle, when conducting a PAR, DHCR is limited to the facts and evidence before the rent administrator as raised in the petition (see 9 NYCRR 2529.6). New facts can be admitted only in narrow circumstances — where "petitioner submits with the petition certain facts or evidence which he or she establishes could not reasonably have been offered or included in the proceeding prior" (id. [emphasis added]). When the petitioner establishes good cause to consider the new evidence, DHCR may remand the matter for redetermination to allow the rent administrator to consider the new evidence (see id.). This Court also has recognized that similar good cause provisions in the Rent Stabilization Code "permit DHCR to accept late filings for good cause shown at `any state of a proceeding' — that is, at any point before the Commissioner has entered a final order" (Dworman v. New York State Div. of Hous. and Community Renewal, 94 N.Y.2d 359, 374-75; see also Pledge v. New York State Div. of Hous. Community Renewal, 257 A.D.2d 391 [1st Dept 1999], affd 94 N.Y.2d 851).

At oral argument, DHCR argued that the data submitted in 1999 could not have been accepted by the Rent Administrator in 1994, and thus that good cause was established for receipt of the comparables. That argument falls short. Clearly, the data submitted in 1999 would not have been accepted in 1994 because, in 1999, DHCR did not ask for the same documents. The salient point, however — which DHCR concedes — is that it does not know whether the owner had documentation in 1994 necessary to prove that its comparability data was "legally sufficient." DHCR can only surmise that the owner did not have those documents.

To be precise, DHCR states in its brief that "it is probable that the Owner did not have the documentation needed to prove the legality of the comparable rents" (Respondent's Brief at 49, n. 26 [emphasis added]).

Even though the RRRA of 1997 relaxed the legal sufficiency requirements for comparable rents in FMRA proceedings, it did not repeal the requirements for introducing new evidence at the PAR level. Agencies are required to abide by their own regulations. When Gilman objected to the introduction of the new comparability data, DHCR should have asked the owner to show good cause to justify its receipt (see Matter of Frick v. Bahou, 56 N.Y.2d 777, 778["the rules of an administrative agency, duly promulgated, are binding upon the agency as well as other persons who might be affected"]). Thus, DHCR acted irrationally in accepting the new comparability data without any showing that the change in the law affected the owner's ability to provide that data. There is no proof in the record that the owner could not have complied with the older, more stringent requirements. To the contrary, the owner indicated its intention to submit comparability data from the start of the proceeding. As the dissent at the Appellate Division noted

"The tenant contends, and [DHCR] does not deny, that the data eventually submitted to the Commissioner in 1999 consisted of apartments `which between 1986-1990, had been vacated by the prior rent-controlled tenant and which had been initially registered with the agency as a stabilized apartment unit, i.e., no more than four years prior to Ms. Gilman's application and one year after it, as provided in the regulation' (see RSC [9 NYCRR] § 2522.3[e]). Thus, this is the same evidence that should have been submitted to the District Rent Administrator for inclusion in the administrative record in 1994." ( 290 A.D.2d at 286-287).

Pursuant to DHCR's notice to the owner in 1994, the owner could establish comparable rents by showing that when the apartments became rent stabilized a notice was served on the tenant and it went unchallenged for 90 days. That requirement does not seem insurmountable for this long-term owner. Thus, DHCR's failure to require the owner to show that it could not previously have submitted comparability data can only be viewed as irrational.

In this case, the rules were changed in midstream — a journey that was excruciatingly and unnecessarily long. DHCR's view of the 1997 statute would impose a $47,000 judgment against Gilman (who has vacated the apartment) in favor of an owner that chose not even to appear in this article 78 proceeding. The new statute cannot rationally be construed to allow the owner in this case to have a second chance at establishing comparable rents without showing that it could not have provided the requisite evidence at the earlier proceeding. DHCR seeks to extend the intended sweep of the RRRA so far as to extinguish the sound policy basis of the good cause requirement for new data at a PAR. Thus, on remand, the agency should require the owner to show good cause prior to reviewing its comparability data.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the matter remitted to Supreme Court with directions to remand to the Division of Housing and Community Renewal for further proceedings in accordance with this opinion. Matter of Gilman v. New York State Division of Housing and Community Renewal

Judge Graffeo dissents and votes to affirm in an opinion in which Judges Levine and Rosenblatt concur.


Because we conclude that the Division of Housing and Community Renewal (DHCR) acted rationally in accepting comparable rent data based on its interpretation of relevant provisions of the Rent Regulation Reform Act of 1997, we respectfully dissent.

In May 1990, Anne Gilman moved into a Manhattan apartment previously subject to rent control. Pursuant to Rent Stabilization Code § 2523.1, the building owner notified Gilman of the "initial legal regulated rent" for the unit — $2,095.00 — — and of her right to bring a proceeding challenging the amount of rent. Gilman exercised that right by commencing a Fair Market Rent Appeal (FMRA). DHCR notified the building owner of Gilman's filing in 1992, and the owner's managing agent, also appearing pro se, then requested an FMRA answering package. DHCR failed to respond to the owner's request.

During this period, DHCR had a substantial backlog of pending cases. In the overcharge unit alone, DHCR claims it had over 26,000 cases pending in 1992, approximately 24,000 cases in 1993 and more than 26,000 cases in 1994. DHCR states that by May 2002, it had reduced this backlog to about 2,000 pending overcharge proceedings .

Having not received a decision from DHCR, in March 1994 Gilman commenced a CPLR article 78 mandamus proceeding to compel the agency to rule on her FMRA, and the parties resolved the proceeding by stipulation. The agency immediately sent an FMRA answering package to the owner's agent, which included instructions indicating that an owner could submit comparability data relating to rents for similar units, provided the owner proved the legality of the rents for the units claimed as comparable. The owner's agent made several requests for additional time to compile and submit this data. Specifically, in an April 19, 1994 letter to DHCR, the agent noted the two-year delay in receiving notice of Gilman's complaint and explained that during that period "many things had happened to the management and ownership of the property. The Managing Agent had passed away and a new Managing Agent has been appointed and the records are not readily available at this time."

Specifically, DHCR previously required owners to establish the legality of the rents charged for the proposed comparable units by submitting proof that the first rent-stabilized tenant had received notice of the right to challenge the rent and that any such challenge had been finally resolved by the agency or that the time to challenge had expired .

In July 1994, DHCR's Rent Administrator (RA) issued an order setting the initial legal regulated rent at $1,011.12 — approximately $1000 per month less than the amount initially charged by the owner — and directing the owner to refund or credit Gilman with about $49,000 for excess rent paid. In the absence of comparability data from the owner, the RA based the calculations on the rent guidelines formula applicable in cases without such data. The owner timely challenged this determination by filing a petition for administrative review (PAR), objecting to, among other things, DHCR's failure to consider the owner's latest request for additional time to submit comparability data.

While the owner's PAR was pending, the Legislature passed the Rent Regulation Reform Act of 1997 (RRRA) (L 1997, ch 116). The Act consisted of "a comprehensive package of reforms" (Mem of Senate Rules Comm, Bill Jacket, L 1997, ch 116, at 36) designed to simplify the administration of rent regulation. According to one commentator, the Act was the most sweeping revision of rent regulation laws in over two decades, enacted after a long political battle between property owners and tenant groups (see Parella, 1996-97 Survey of New York Law: Real Property, 48 Syracuse L Rev 821, 826 [1998]).

In particular, the Act amended New York City Rent Stabilization Law § 26-516(a) to clarify and reinforce the four-year statute of limitations in rent overcharge claims (see Governor's Mem approving L 1997, ch 116, 1997 McKinney's Session Laws of NY, at 1923). That section precludes "examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint" (New York City Rent Stabilization Law § 26-516 [a][2]). The Act, which became effective immediately upon enactment, stated that the amendments were to apply "to any application, complaint or proceeding before an administrative agency on the effective date of this act, as well as any action or proceeding commenced thereafter" (L 1997, ch 116, § 46 [1]).

DHCR interpreted the Act's four-year rule as applicable to all pending rent and overcharge challenges, including FMRAs (see Estis Turkel, Real Estate Update, Four-Year Rule: DHCR Issues Broad Interpretation of Limitation Provisions, NYLJ, Nov. 4, 1998, at 5, col 2). Accordingly, the agency initiated State Administrative Procedure Act procedures to conform its regulations to the new statute, with the intended purpose of easing the proof requirements which had previously governed the submission of comparability data (see N.Y. Reg, April 5, 2000, at 17-19; compare 9 NYCRR 2522.3[e], with former 9 NYCRR 2522.3[e]).

Consistent with this policy, in June 1999, DHCR sent the owner notification entitled, "Request for Comparability Data Pursuant to the Rent Regulation Reform Act of 1997," stating:

"[a]s a result of changes in the processing of Fair Market Rent Appeals mandated by the Rent Regulation Reform Act of 1997 and recent court decisions, you are hereby afforded a final opportunity to submit comparability data."

The owner responded by delivering comparability data. DHCR then mailed Gilman a "Notice of Opportunity to Submit Evidence," explaining that she was being provided an opportunity to comment on the comparability data submitted by the owner. Gilman replied that the new data should be ignored by DHCR because it was new evidence that could not be offered at the PAR stage.

DHCR's Deputy Commissioner partially granted the owner's PAR to reflect consideration of the comparability data submitted by the owner pursuant to the RRRA of 1997, ruling that two units constituted comparables and that it was unnecessary for the owner "to prove service of a notice of initial rent on the tenants of comparable apartments if the apartments have been registered for at least four years without challenge" (Deputy Commr. Order, Dec. 16, 1999, at 3-4). Using the accepted comparables, the Deputy Commissioner concluded that the appropriate legal rent was $1,754.64, or approximately $340 per month less than the initial rent established in 1990. However, because the earlier RA order had reduced the initial rent by almost $1000 per month, the new determination meant that Gilman had underpaid for five years, resulting in approximately $47,000 in rent arrears. Gilman thereafter commenced this CPLR article 78 proceeding to annul DHCR's determination.

A court may not disturb an administrative determination unless it lacks any rational basis (see Matter of Nehorayoff v. Mills, 95 N.Y.2d 671, 675; Matter of County of Monroe v. Kaladjian, 83 N.Y.2d 185, 189; Matter of Pell v. Board of Educ., 34 N.Y.2d 222, 231). In light of the enactment of the RRRA of 1997, the issue distills to whether DHCR acted irrationally when it notified the owner of the new legislation and accepted comparability data during the administrative appeal process. Relying on a DHCR regulation which permits PAR review of new evidence only upon a showing that the evidence could not reasonably have been included before the rent administrator (see 9 NYCRR 2529.6), Gilman contends, and the majority concludes, that the agency was precluded from considering the owner's comparability data during this PAR proceeding. We disagree.

The majority reads this regulation as requiring the owner to demonstrate that, in 1994, the documentation proving that the comparability data was legally sufficient under the old requirements did not exist. This view of the regulation unduly restricts DHCR's authority. First, the regulation itself merely requires an owner to establish that the evidence "could not reasonably have been offered or included" at the RA level (see 9 NYCRR 2529.6). There are various conceivable explanations that DHCR might accept as satisfactory under the PAR new evidence regulation, including, perhaps, the reasons proffered in the owner's April 1994 extension request. Second, by limiting the manner in which the owner could satisfy the regulation to a showing that the owner was not in possession of the proof formerly required, the majority effectively deprives the owner of the benefit of the new legislation which the majority concedes was intended to reduce those strict proof requirements. Because the RRRA was applicable to all pending proceedings, including this PAR proceeding, it was not arbitrary or capricious for the agency to determine that the regulation did not prevent the owner from attempting to meet the new proof requirements.

Most importantly, the majority fails to grant the agency the appropriate deference in fashioning procedures to respond to this unusual situation (see Flacke v. Onondaga Landfill Sys., 69 N.Y.2d 355, 363). Faced with sweeping new legislation applicable to all pending proceedings, DHCR immediately changed its policies and began the process of revising its regulations to implement the Act. The agency determined that compliance with the Legislature's intent to lessen owners' strict proof requirements necessitated providing owners with an opportunity to submit comparability data in pending cases under the new standard, dispensing with some of the registration documentation previously required. We conclude that DHCR's decision to consider the owner's new submission was rational under these extraordinary circumstances.

DHCR solicited the admission of comparability data precisely because of the modification in proof requirements and was aware that the owner's new evidence would have been rejected as inadequate had it been tendered prior to the enactment of the RRRA. Viewed in this light, the agency's decision to consider the data without requiring the owner to separately establish that it could not reasonably have been included earlier in the proceeding was not an irrational implementation of the new statute. Put another way, having determined that the legislation applied to all pending proceedings and required alteration of the nature of proof the agency could consider in calculating fair market rents, it was not arbitrary or capricious for the agency to reopen the record of this proceeding to accept comparability data.

At oral argument, the attorney for DHCR stated that the agency would have rejected the owner's data had it been proffered under the former statute and guidelines .

To be sure, the RRRA did change the rules midstream. DHCR was obligated to give effect to the legislative mandate that the Act be applied to all pending proceedings. The majority suggests an alternative procedure that DHCR might have followed in this case. Even if we were to agree that the administrative process the majority has devised would have been preferable, we would reach a contrary result because our power in the context of a CPLR article 78 proceeding is limited to assessing whether the procedure DHCR employed was rational under the circumstances presented — not whether a better course of action was available to the agency. Accordingly, we would affirm the order of the Appellate Division.

Order reversed, with costs, and matter remitted to Supreme Court, New York County, with directions to remand to respondent New York State Division of Housing and Community Renewal for further proceedings in accordance with the opinion herein.


Summaries of

In re Gilman v. N.Y.S. Div. of Housing

Court of Appeals of the State of New York
Nov 21, 2002
99 N.Y.2d 144 (N.Y. 2002)

In Gilman, we held that DHCR acted irrationally when it applied an amendment relaxing evidentiary requirements for admission of owner records to permit an owner to reopen the record, nearly a decade after the tenant commenced the proceeding and during the administrative appeal, expressing concern that "the rules were changed in midstream" (99 NY2d at 147, 149-152).

Summary of this case from Regina Metro. Co. LLC v. N.Y. State Div. of Hous. & Cmty. Renewal
Case details for

In re Gilman v. N.Y.S. Div. of Housing

Case Details

Full title:IN THE MATTER OF ANNE GILMAN, Appellant, v. NEW YORK STATE DIVISION OF…

Court:Court of Appeals of the State of New York

Date published: Nov 21, 2002

Citations

99 N.Y.2d 144 (N.Y. 2002)
753 N.Y.S.2d 1
782 N.E.2d 1137

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