Scott v Rockaway Pratt, LLC

[*1] Scott v Rockaway Pratt, LLC 2009 NY Slip Op 51684(U) [24 Misc 3d 1231(A)] Decided on July 21, 2009 Supreme Court, New York County Sherwood, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 21, 2009
Supreme Court, New York County

Christopher Scott, Plaintiff,

against

Rockaway Pratt, LLC, Defendant.



100469/2008



Jeffrey McAdams, Esq. for plaintiff

Steven D. Sidrane, Esq. of Sidrane & Schwartz-Sidrane, LLP for defendant

O. Peter Sherwood, J.

In this rent overcharge action, defendant-landlord Rockaway Pratt, LLC ("Rockaway Pratt" or "defendant") moves for an order pursuant to CPLR § 3212 granting summary judgment in its favor dismissing the complaint. Plaintiff Christopher Scott ("plaintiff" or "Scott"), a tenant who since January 2004 has lived in a rent-stabilized apartmentat premises currently owned by Rockaway Pratt[FN1], located at 770 St. Marks Avenue ("the premises"), No.2B, Brooklyn, New York ("the subject apartment"), cross moves for summary judgment in his favor awarding him $36,135.10 in alleged rent overcharges, treble damages in the amount of $41,774.32 and attorney's fees of $38,954.71.

Background

The parties have stipulated to a set of agreed facts. On September 9, 1982, the Conciliation and Appeals Board ("CAB"), the predecessor agency to the New York State Division of Housing and Community Renewal ("DHCR"), issued expulsion order #

648 based upon a building-wide complaint that the then owner had reduced certain required services at the premises. The CAB reduced the rent for all tenants at the premises "to the level in effect prior to the most recent guidelines increase retroactively to August 1, 1982, the first of the month following ten days after the issuance of the initial Board order herein" (Def's Ex. "A"; Pl's Ex. "1"). The directives in the expulsion order were to survive and remain fully enforceable thereafter and in the event an apartment became vacant after the date of the expulsion order the owner of the premises was not entitled to collect a rent increase beyond the level in effect on August 1, 1982, unless all directives contained therein had been complied with (Pl's Ex. "1"). Subsequently, the New York [*2]City Department of Housing Preservation and Development ("HPD") issued a rent reduction order, dated December 19, 1983, setting the legal regulated rent of the subject apartment as of the date of the expulsion order at $179.03 per month (Def's Ex. "A"; Pl's Ex. "1").

By order dated May 2, 1994, the DHCR denied the owner's application to restore the rent on the subject apartment upon its finding that the then owner had not complied with the CAB's directives to restore required services and, thereby, maintained the subject apartment's legal regulated rent as frozen (Def's Ex. "A", ¶ 7). The subject apartment was listed as being affected by the original expulsion order, as well as by the subsequent order rolling back the rent, and indicated the tenant as being "Clarke/Willey" (Pl's Ex. "1"). By orders dated September 18, 2008, and March 13, 2009, the DHCR again denied the owner's applications for a rent restoration order (Def's Ex. "A", ¶ 8; Pl's Exs. "8", "11"). No order unfreezing the rent of the subject apartment has been issued by any agency involved in regulating rent including DHCR, HPD and CAB (Def's Ex. "A", ¶ 10; Pl's Ex. "4").

On or about May 19, 2003, the previous tenant of the subject apartment, Gloria Clark, surrendered possession of the apartment in exchange for the payment of $500.00 (Def's Exs. "A"and "D"). The apartment apparently remained vacant until January 2004, when plaintiff entered into a rent-stabilized lease with defendant's predecessor, H & L Realty, for a one-year term commencing January 15, 2004 and ending January 14, 2005, at a monthly rent of $925.00 (Def's Ex. "B"). In connection therewith, the Department of Social Services ("DSS") issued two checks, payable to defendant's predecessor, each in the amount of $940.00, for the security deposit and broker's fee (Def's Ex. "A", ¶ 11). Plaintiff continually paid rent in full at the monthly rate of $925.00 from January 2004 through April 30, 2008 (Def's Ex. "A", ¶ 11).

On or about May 5, 2008, Rockaway Pratt determined that by virtue of HPD's rent reduction order, the rent for the subject apartment had been frozen at $751.18 per month, which was the rent paid by the former tenant Gloria Clarke at the time she vacated the apartment, as indicated in the 2007 rent registration statement filed with DHCR (Pl's Ex. "6"). On that basis, defendant refunded the sum of $2,362.85 to the DSS for rent overcharges paid on plaintiff's behalf and gave plaintiff a

rent credit of $9,422.22, representing a rent overcharge of $8,505.75, with interest at 9% per annum in the sum of $916.47, for a total rent credit of $9,422.22 (Pl's Ex. "6").

On January 11, 2008, Scott commenced the instant action against the present owner of the premises, Rockaway Pratt, by filing the summons with notice, seeking to recover rent overcharges, treble damages for allegedly willful overcharge, and attorney's fees based upon DHCR's rent reduction order. The verified complaint, filed on April 9, 2008, alleges that pursuant to HPD's rent reduction order the rent for the subject apartment remained frozen during the entire period of plaintiff's tenancy at $179.03 per month and, therefore, Scott had been overcharged through the date of filing the summons with notice in the sum of $36,135.10, plus treble damages, for total damages of $77,909.42, together with $38,954.71 in attorney's fees (Pl's Ex. "1").

Issue was joined by service of defendant's verified answer, which was amended on or about December 16, 2008, in which defendant generally denies the allegations of the complaint, except admits that the rent paid by plaintiff or on his behalf was $925.00 per month, and interposes an affirmative defense in which it contends that the base date from which all rent increases under the Rent Stabilization Code are calculated is January 11, 2004, which is four years prior to the filing of the Summons with Notice in this action (Pl's Ex. "2", ¶ 12). On that date the apartment was vacant [*3]and, thus, defendant contends that pursuant to section 2526.1 (a) (3) (iii) of the Rent Stabilization Code the legal regulated rent would be the first rent agreed to between the owner and the first rent stabilized tenant after such vacancy, to wit the $925.00 rent established in plaintiff's lease with defendant's predecessor (Pl's Ex. "2", ¶ ¶16- 18).

Rockaway Pratt now moves for summary judgment contending that plaintiff was not overcharged as the legal stabilized rent as of the base date is $925.00, which the parties agree is the rent which plaintiff has continually paid since taking occupancy of the subject apartment on January 15, 2004. Although the defendant now contends that the base date is April 9, 2004, which is four years prior to the filing of the verified complaint, it also argues that even if the court were to find the base date to be January 11, 2004, the legal regulated rent would still be $925.00. In advancing its arguments, defendant contends that both the Rent Stabilization Law and judicial precedent preclude this Court from examining the rent history of the subject apartment prior to the four-year period preceding the filing of the rent overcharge complaint and such limitation applies regardless of whether there is a pre-existing rent reduction order in effect. Thus, for purposes of determining the

rent overcharge, if any, in this case, defendant avers that no rent event prior to 2004 may be considered.

Plaintiff opposes defendant's motion and cross moves for summary judgment in his favor for the full amount of damages sought in the complaint. Plaintiff disagrees with setting the base rent for purposes of determining the overcharge as the rent set in January 2004 when he entered into the lease with defendant's predecessor for the subject apartment. Rather, plaintiff contends that the base rent should be $179.03 per month as set in the original HPD rent reduction order in December 1983. He contends that to apply the four-year statute of limitations applicable to rent overcharge claims as a bar to consideration of the continuing rent freeze would permit defendant and other landlords to ignore with impunity rent reduction orders stemming from failures to provide required services and nullify the protections offered to tenants by such orders.

Discussion

The only question before the Court is whether for purposes of establishing the legal regulated rent for the subject apartment and determining the existence and amount of rent overcharge, if any, the Court may consider rent reduction orders issued more than four years prior to the filing of the complaint but in effect within the four year period. Rockaway Pratt's defense is predicated upon the Rent Regulation Reform Act ("RRRA"), adopted by the Legislature on June 19, 1997 (L 1997, ch 116), two provisions of which amended the Rent Stabilization Law § 26-516 (a) (2) to specifically limit challenges that rent stabilized tenants may bring regarding rents or rent increases charged for rent stabilized premises to those occurring within the four-year period immediately prior to the filing of the rent overcharge complaint. These provisions have been codified under CPLR § 213-a and Rent Stabilization Law ("RSL") § 26-516 (a). CPLR § 213-a provides, in pertinent part, that an action on a residential rent overcharge:

shall be commenced within four years of the first overcharge

alleged and no determination of an overcharge and no award

or calculation of an award of the amount of any overcharge may

be based upon an overcharge having occurred more than four years

before the action is commenced. This section shall preclude

examination of the rental history of the housing accommodation [*4]

prior to the four-year period immediately preceding the

commencement of the action.

Under the RSL § 26-516 (a) (i):

the legal regulated rent for purposes of determining an

overcharge, shall be the rent indicated in the annual registration

statement filed four years prior to the most recent statement . . .

plus in each case any subsequent lawful increases and adjustments.

Where the amount of rent set forth in the annual rent registration

statement filed four years prior to the most recent registration

statement is not challenged within four years of its filing, neither such

rent nor service of any registration shall be subject to challenge at any

time thereafter.

The legal regulated rent is defined in the Rent Stabilization Code ("RSC") § 2520.6 (e) as "the rent charged on the base date set forth in subdivision (f) of this section, plus any subsequent lawful increases and adjustments." The base date for this purpose is defined in subdivision (f) as the date which is the most recent of the date four years prior to the date of filing of such appeal or complaint. Here, the parties have stipulated that the rent paid as of the base date, January 11, 2004, was at the rate of $925.00 per month.

The RRRA was "intended to strengthen the limitation on the review available in rent overcharge proceedings strictly to the four-year period immediately preceding the filing of the complaint" (Matter of Ardor Realty, LLC v Division of Hous. & Community Renewal, 25 AD3d 128, 136 [2d Dept 2005]) and " to simplify the administration of rent laws while protecting the rights of tenants and owners'" (id. quoting from Governor Pataki's memorandum approving L. 1997, ch 116, 1997 McKinney's Session Laws of NY, at 1923). The time limitation imposed therein was also intended to relieve building owners from having to retain rent records on rent stabilized apartments dating back more than four years from the time of the filing of the overcharge complaint (see, Zafra v Pilkes, 245 AD2d 218, 219 [1st Dept 1997]).

In Zafra, the First Department held that the unambiguous language of the RRRA specifically precluded the Court in a rent overcharge proceeding from considering the rental history of the housing accommodation prior to the four-year statutory period preceding the filing of the rent overcharge complaint. However, where an order issued by DHCR prior to the limitation period imposed a continuing obligation on the landlord to freeze the rent until the unlawful condition giving rise to the order is remedied and a rent restoration order issued, the statute of limitations is no defense to an action on a breach of a duty occurring within the limitation period (see Thornton v. Baron, 5 NY3d 175, 180 [2005]; see also Jenkins v. Fieldbridge Associates, LLC, ____AD3d _____, 877 NYS2d 375, 378 [2d Dept 2009]).

Although the court may properly take notice of rent reduction orders issued more than four years prior to the filing of the overcharge complaint in some circumstances, the statute of limitations imposed on the RRRA must be observed. The amount of any rent overcharges recoverable should be limited to the four year period prior to the filing of the overcharge complaint and the amount of the treble damages, if any, to the two years prior to the filing of the complaint (see Cintron v. Calogero, 59 AD3d 345, 346 [1st Dept 2009]). [*5]

In this case, the landlord charged and collected rent in excess of the legal regulated rent fixed by a rent reduction order which was issued prior to the four-year period preceding the filing of the rent overcharge complaint. The rent reduction order imposed a continuing obligation on the landlord to make repairs and to provide required services. The order was reaffirmed in September 2008, within the limitations period. The order is still in effect because the owner has not made all necessary repairs and restored all required services. Accordingly, this Court will consider the rent reduction order which was in effect at the time of the filing of plaintiff's overcharge complaint and will give effect to it and freezing the rent of the subject apartment at $179.03. The amount of rent overcharges recoverable shall be limited to the four years prior to the filing of the overcharge complaint.

Computation of the amount of the overcharge may not be determined on this record. Based upon the owner's erroneous conclusion as to the amount of the "frozen" rent, it refunded the sum of $2,362.85 to the DSS that was paid on plaintiff's behalf and provided rent credits to plaintiff in the sum of $9,422.22. When the owner changed its position with respect to the amount of the legal regulated rent, it discontinued the rent credits to plaintiff. Although the parties stipulated that plaintiff and/or DSS paid the owner or its predecessor from January 2004 through April 2008 the sum of $48,115.00, which included $940.00 paid as rent for January 2004, it is unclear the total amount of rent credits received by plaintiff. Therefore, a hearing is necessary to calculate the total amount of the rent overcharge for the four years based on the $179.03 set in HPD's rent reduction order less any refunds to DSS or rent credits provided to plaintiff.

The question remains whether treble damages should be imposed. The treble damages provision of the Rent Stabilization Code provides that: "Any owner who is found . . . to have collected any rent . . . in excess of the legal regulated rent shall be ordered to pay to the tenant a penalty equal to three times the amount of such excess . . . (9 NYCRR § 2526.1 [a] [1]). A rent overcharge is presumed to be willful subject to rebuttal by the owner showing a lack of wilfulness. The burden is on the owner to establish by a preponderance of the evidence that the overcharge was not willful (id.; Matter of Ardor Realty v Division of Hous. & Community Renewal, 25 AD3d, supra at 140). If the owner fails to meet its burden, it is liable for treble damages limited to two years preceding the complaint's filing (Rent Stabilization Code [9 NYCRR] § 2526.1 [a] [2] [i]; RSL § 26-516 [a] [2] [I]).

Here the owner contends that even if the Court finds plaintiff was overcharged, treble damages should not be imposed because prior to the time its time to answer had expired it made a timely refund to DSS of amounts it deemed were charged in excess of the legal regulated rent, which at that time it determined to be the $751.18 rent paid by the prior tenant, including interest at 9.00%. Subsequently, the owner changed its position as to the legal regulated rent, having learned that the apartment was vacant on the base date. In reliance upon section 2526.1 of the Rent Stabilization Code, defendant alleges that it was authorized to charge any rent agreed to with plaintiff "the first rent stabilized tenant taking occupancy after . . . vacancy" (Rent Stabilization Code [9 NYCRR] § 2526.1 [a] [3] [iii]).

In the first instance, the court rejects the owner's argument concerning the alleged vacancy on the base date. Although plaintiff had not yet taken possession of the apartment on January 11, 2004, the lease providing for occupancy as of January 15, 2004 had already been fully executed. In [*6]any event, in light of the foregoing discussion with respect to the rent reduction order, this issue is irrelevant as the legal regulated rent is the rent set in the rent reduction order. The owner also relies upon DHCR Policy Statement 89-2 which provides that a lack of wilfulness may be found and treble damages will not be imposed:

When an owner adjusts the rent on his or her own within the time

afforded to interpose an answer to the proceeding and submits proof

to the DHCR that he or she has tendered, in good faith, to the tenant

a full refund of all excess rent collected, plus interest (Def's Ex. "G").

However, this is only one criteria among many that the DHCR mentions in Policy Statement 89-2 as indicia of a lack of wilfulness. The Court is obligated to examine the totality of the evidence with respect to the owner's wilfulness and/or lack of good faith. Although plaintiff contends that treble damages are warranted simply because the rent reduction orders were in effect and placed the owner on notice as to both the repairs and services which were to be provided and as to the amount of the frozen rent, the Court finds issues of fact exist as to the issue of the owner's wilfulness (cf. Matter of Amsterdam, LLC v New York State Div. of Hous. & Community Renewal, 61 AD3d 553 [1st Dept 2009]). The record indicates that defendant became the owner only a year before this overcharge action was commenced, that certain required repairs had been made and that the owner attempted to rectify any overcharge situation based upon its review of the rent statements on file by tendering the amount of overcharges to DSS on plaintiff's behalf based upon its erroneous calculation. Thus, this issue will be referred to a Referee for a hearing.

Lastly, plaintiff seeks an award of attorney's fees. Although the Rent Stabilization Law and the Rent Stabilization Code provide that an owner found to have overcharged may be assessed reasonable attorney's fees of the proceeding (RSL § 26-516 [a] [4]; RSC [9 NYCRR] § 2526.1 [d]), the plaintiff has not submitted any documentation in support of its request for attorney's fees. The statutory language makes clear that an award of attorney's fees is not mandatory, but rather is a matter within the discretion of the court and is deemed to be in the nature of an additional penalty. Therefore, this issue should also be considered at a hearing before a Referee.

Conclusion

Based upon the foregoing discussion, it is hereby

ORDERED, that defendant's motion for summary judgment dismissing the complaint is denied; and it is further

ORDERED, that plaintiff's cross motion for summary judgment in his favor is granted to the extent that plaintiff is found to have been subjected to a rent overcharge; and it is further

ORDERED, that the issues of: (1) the calculation of the rent overcharge; (2) owner's alleged wilfulness and whether treble damages should be assessed; and (3) plaintiff's entitlement to attorney's fees are referred to a Special Referee to hear and report with recommendations, except that, in the event and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issues; and it is further

ORDERED, that plaintiff's counsel shall within 30 days from the date of this order, serve a copy of this order with notice of entry, upon the Special Referee Clerk in the Motion Support Office, Room 119, at the courthouse located at 60 Centre Street, who is directed to place this matter [*7]on the calendar of the Special Referee's Part (Part 50 R) for the earliest convenient date.

This constitutes the decision and order of the court.

DATED: July 21, 2009

E N T E R,

______________________________

O. PETER SHERWOOD

J.S.C. Footnotes

Footnote 1:The complaint alleges that Rockaway Pratt became the owner of the premises on or about January 4, 2007. This allegation was admitted by defendant in its answer.