Matter of 400 E. 58th St. Co. v New York State Div. of Hous. & Community Renewal

[*1] Matter of 400 E. 58th St. Co. v New York State Div. of Hous. & Community Renewal 2005 NY Slip Op 50285(U) Decided on February 7, 2005 Supreme Court, New York County Lehner, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 7, 2005
Supreme Court, New York County

In the Matter of the Application of The 400 EAST 58TH STREET COMPANY, Petitioner, For a Judgment Under Article 78 of the Civil Practice Law and Rules,

against

NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Respondent.



107701/04

Edward H. Lehner, J.

Before the court on this rent dispute, which has now incredibly continued for over 17 years after the tenant herein filed a fair market rent appeal ("FMRA") in November 1987, is a request by the petitioner-landlord to annul the order of respondent New York State Division of Housing and Community Renewal ("DHCR") dated March 24, 2004, or alternatively remanding the proceeding to DHCR for further proceeding.

The tortured history of this controversy is set forth in the order of Justice Gans of this court dated March 21, 2001 in the proceeding entitled Lee v. DHCR, Index No. 111734/00, in which she remanded the matter to DHCR for reconsideration, and in the affirmance of the remand by the Appellate Division (300 AD2d 240) in December 2002. In remanding the matter the Appellate Division set forth the limited issue for reconsideration as follows (p. 242): "Resolution of this matter is governed by the Court of Appeals recent decision in Matter of Gilman v New York State Div. of Hous. & Community Renewal (99 NY2d 144, revg 290 AD2d 280), which is entirely dispositive of the issues presented. Gilman holds that while the Rent Regulation Reform Act of 1997 (L 1997, ch 116) applies to fair [*2]market rent appeals ..., it did not repeal the requirements for introducing new evidence at the PAR level. (Gilman at 151.) The record suggests that the new evidence offered by the landlord was not submitted with the petition (Rent Stabilization Code [9 NYCRR] §2529.6; Gilman, 290 AD2d at 284-285). In any event, DHCR should have asked the owner to show good cause to justify its receipt (Gilman at 151, citing Matter of Frick v Bahou, 56 NY2d 777, 778)."

In Gilman, which was decided after the aforesaid decision of Justice Gans, the court held that on a FMRA information with respect to a comparable apartment initially submitted on the petition for administrative review ("PAR") should not have been considered by DHCR "without any showing of good cause" (p.147). In that case the court noted that the 1997 Rent Regulation Reform Act ("RRRA") "eased the legal sufficiency requirements for comparability data by removing the strict proof of notice requirements" (p. 146) in a FMRA. Previously, to employ data from another apartment in considering comparability a landlord would have to show that the tenant of the compared unit was a first stabilized tenant of the unit and was served with a notice which was not challenged for 90 days (p. 147). With the adoption of a four-year statute of limitations in the RRRA a tenant could no longer challenge an initial rent after the passage of four years, which had the effect of increasing the number of eligible comparables.

The landlord in Gilman first submitted comparability data on its PAR and the issue before the court was whether DHCR could properly consider such data in rendering its decision. In directing a remand the court found that the RRRA "said nothing about the wholesale introduction of new evidence at the appellate level", and it stated (pp. 150-151): "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 .... "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 [*3]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])."

* * *

"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 ...."

In this proceeding DHCR concedes that petitioner did not have any apartments in the subject building which it could have submitted to the Rent Administrator (the "RA") as qualified comparables in the FMRA (Tr. pp. 40-41), and it is acknowledged that the records of DHCR regarding units in other buildings are confidential (Tr. p. 30; Rent Stabilization Code §2528.5). In rejecting petitioner's contention that DHCR should have researched its own records for comparables, DHCR stated on the PAR that the "submission of comparability data was optional and DHCR had no authority to exercise this option on behalf of an owner" (p. 5). But, see Docket No. OH410023RP where on a PAR decision dated May 25, 2004 (two months after the PAR decision herein),a comparable apartment was "identified by DHCR through a search of its own rent registration data base".

In January 2000 DHCR afforded petitioner on a prior reopened PAR the opportunity to submit comparability data. In response, petitioner submitted data with respect to a unit at 231 East 50th Street which had been initially rented to a rent stabilized tenant during the relevant window period (within four years before or one year after the subject rental). Based on that information, DHCR established a fair market rent of $1230.37. It was that determination that resulted in the remand by Justice Gans and the subsequent Appellate Division decision, which limited the remand solely to the issue of whether the petitioner showed "just cause" to justify the receipt of the comparability data at the PAR level.

In the PAR determination challenged herein, DHCR states (p. 4): "In the supplement to the PAR, the owner sought to have apartments [*4]in other buildings that it owns used as comparables but these apartments were not initially rented within the window period. The owner argues that its efforts establish that it thoroughly searched its own records for comparables but none qualified prior to RRRA 1997. Apartments in buildings not owned by the owner could not be used because the owner did not have access to any of the proof of notice evidence previously required. The passage of RRRA 1997 enabled the owner to submit comparables that had not previously qualified, and this establishes good faith for the submission of such comparables with the PAR." (Emphasis supplied)."

In its PAR decision, its answer, and at oral argument DHCR makes much of the delay of petitioner in submitting a comparable after the enactment of RRRA in 1997 (Tr. pp. 29, 39; answer ¶38, et seq.). However, a delay in submission of data after the enactment of the RRRA was not the issue remanded to DHCR. The issue was solely whether petitioner showed good cause in not submitting such data at the time the matter was before the RA who, by order dated October 8, 1993, reduced the legal rent to $860.74. The finding of lack of good faith, apparently based to a large extent on the asserted time delay in submitting the comparability data after the enactment of the RRRA, is arbitrary and capricious. It is noted that the submission of such data was a timely response to an opportunity afforded by DHCR in January 2000 for such submission at the PAR level, and petitioner states that it then had only recently obtained such information from a client of its current attorneys (Tr. p. 35).

Indicative of the importance to DHCR of the timeliness of the submission of the data after the effective date of the RRRA is the assertion in paragraph 50 of its answer that: "The claim that it is irrelevant when the owner submitted the comparables is without merit. When the owner submitted the comparable goes to the issue of good cause because if the owner had submitted the comparable just after the passage of the RRRA of 1997 its argument that previously it was unable to comply with the notice requirements and submitted the comparable as soon as the notice requirements were relaxed would make sense."

There is nothing to show that at the time of the proceeding before the RA in 1993 that petitioner had a qualifying apartment in another building it owned (see, portion of PAR decision quoted above; Tr. P. 47) and, as aforesaid, it is [*5]acknowledged that no qualifying unit existed in the subject building. Providing qualified comparables from tenants of buildings owned by others required proof of service of a notice upon such tenants and the expiration of a 90-day period without such tenant instituting a FMRA, and the above quoted portion of the PAR decision acknowledges that petitioner lacked such data. It is certainly understandable why landlords might then be reluctant to share rental information with other owners, who are to a certain extent competitors, although they do cooperate in other respects, i.e., labor relations, lobbying, etc. DHCR seeks to justify its finding by arguing that owner organizations share rental information and since petitioner obtained the data in 2000, it could have obtained this information from other owners in 1993 (Tr. pp. 38-44). However, there is nothing in the record to justify a conclusion that, at the time the matter was before the RA in 1993, petitioner could have submitted data on qualifying comparable units from other owners. The statement in the PAR that petitioner had "numerous opportunities to submit information about comparable apartments to the RA" (p.5.), while true insofar as it was in fact given such opportunity, is not determinative of good faith without any proof that it had relevant data to provide at that time.

Accordingly, petitioner's motion is granted and the determination at issue herein is annulled and, most regrettably, the court remands this proceeding (which apparently now involves over $100,000) to DHCR to reconsider solely the issue previously remanded to it by the Appellate Division as to whether petitioner has shown good cause for not submitting the comparability data to the RA when the proceeding was pending before the RA so as to justify its receipt on the subsequent PAR. Its determination on this issue shall be made within 90 days of the date hereof.

This decision constitutes the judgment of the court.

Dated: February 7, 2005______________

J.S.C.