Matter of Second 82nd SM LLC v New York State Div. of Hous. & Community Renewal

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Matter of Second 82nd SM LLC v New York State Div. of Hous. & Community Renewal 2012 NY Slip Op 30865(U) March 10, 2012 Sup Ct, NY County Docket Number: 110928/11 Judge: Michael D. Stallman Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] EDON41512012 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: Hon. PART 21 MICHAEL D.STALLMAN Justice b IN THE MATTER OF THE ADMINISTRATIVE APPEAL 110928/11 INDEX NO. OF MOTION DATE SECOND 82ND LLC, SM 1/27/12 I Petltloner, I - agalnrt NEW YORK STATE DIVISION OF HOI COMMUNITY RENEWAL, n 'I I' I The followlng papem, numbered I to 4 ,were read on thls Artlcle 78 Petltlon ' I No(@. 1-2 Verlfled Answer - Exhlblta A-B IWd. 3 Reply 1No(s). 4 Notlce of Petition- Verified Petltlon - Exhlblts A-D c * . I I Upon the foregoing papers, it is ordered that thls Article 78 petition Is decided in accordance with the annexed memorandum decision and Judgment. . - 7 HON. MICHAEL 0.STALLMAN 1 Dated: . ?bb/;y \ New ork, New York ;,is 3. Check If approprlats: ................................................ , J.S.C. ~~ 1 I Check one: ................................................................ . x CA~E DISPOSED 2. Check If approprlats: ............................ PETITION I S : n GRANTED x D u n NON-FINAL DISPOSITION 0OTHER U DO NOT POST I&IDUCIARY APPOINTMENT 0REFERENCE t r 0SETTLE ORDER 1 . [7 GRANTED IN PART SUBMIT ORDER [* 2] SUPREME CC JRT OF THE S T .TE Og JEW COUNTY OF NEW YORK: IAS PART 2 1 -- - _ - - - - - - - - - - _ _ _ - - - _ _ _ _ IN THE MATTER OF THE ADMIN'ISTRATIV APPEAL of SECOND 82nd S M LLC , Petitioner, For a J'udgment Pursuant to Article t h e Civil Practice Law and Rules Index No. 110928/11 -against - NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, DECISION AND JUDGMENT Respondent. -. X - - _ _ - _ _ - - - - - _ _ - - _ - _ _ l _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - - - - - HON. MICHAEL D. STALLMAN, J . S . C . : Petitioner Second 82"'sSM LLC (Landlord) brings this Article 78 proceeding f o r an order reversing a July 2 8 , 2011 Opinion and Order (Order) of respondent New York State Division of Housing and Community Renewal (DHCR), ',.The, Order, insofar as is relevant here, denied Landlord's petition for administrative review (PAR) of the August 13, 2010 order of the District R e n t Administrator, which awarded triple damages on rent overcharges imposed on the tenants (Tenants) who resided, f o r approximately 16 years, in apartment 19B (Apartment) of the building located at 240 East 1 [* 3] - 82nd Street (the Building). Landlord owns the Buil( i n g . - Tenants are not parties t o this proceeding. The Court notes that Landlord's notice of petition refers not to the Order, but to the August 13, 2010 order of the RA. So too, a number of the arguments in the petition are addressed to the RA's order. That nonfinal order may not be brought up f o r review in an Article 78 proceeding. , , CPLR 7801 (1); Matter of Committee to Save the Beacon T h e a t e r v C i t y of New York, 146 AD2d 397 (1st Dept 1989). However, inasmuch as Landlord properly filed a PAR with DHCR, the Court will assume that Landlord's notice of petition and, where applicable, Landlord's arguments, are, in fact, addressed to the Order. The petition alleges that the Order is arbitrary and .. capricious, and an abuse of discretion, and that it violated Landlord's right to due process of law. The petition also purports to allege that t h e Order "on t h e entire record, was not supported by substantial evidence." Petition at 5, tracking CPLR 7803 ( 4 ) . A p a r t y may raise the question of substantial evidence only in relation to Ita determination made as the result of a hearing held, and at which evidence was taken, purauant t o direction of law." CPLR 7803 (4). Here, no evidentiary hearing was held. Accordingly, there can be no question of substantial 2 [* 4] - evidence. The administrative proceeding under review was commenced when the Tenants filed a complaint of rent overcharges with DHCR. After Landlord and Tenants had submitted documents and written arguments, the Rent Administrator (RA) found that Tenants' agreement that t h e y would not use the Apartment as their primary residence did not exempt the Apartment from rent stabilization; Tenants were overcharged; and Landlord's stated belief that the Apartment was exempt from the RSL "was not sufficiently persuasive so as to establish by the preponderance of the evidence that t h e overcharge found in this case was not wilful.11 Petition, E x h . A , at 1. Accordingly, the RA imposed treble damages dating back to two years prior to the filing of Tenants' .. overcharge complaint, with interest on overcharges in the t w o earlier years. Landlord thereupon filed a PAR, arguing that the overcharge was not willful; that, in any event, Landlord had issued a refund check to Tenants prior to the RA's order; and that Landlord's leasing director had showed that her rent calculations differed from those of t h e RA. The Order rejected Landlord's arguments; corrected a typographical error in t h e ¬?.A's order, a o aB to reflect the true amount due to Tenants, as stated on t h e calculation chart attached to the 3 order; and denied [* 5] Landlord's PAR. Where DHCR makes a finding of rent overcharge, t h e overcharge is presumed to have been willful, and a penalty equal t o three times the overcharge is to be imposed, unless the landlord shows, by a preponderance of the evidence, that the overcharge was not willful. Administrative Code of City of New York § 26-516 ( a ) ; Matter of Graham Ct. O w n e r s Corp. v D i v i s i o n of Hous. and Community R e n e w a l , 71 AD3d 515 (1st Dept 2010). Landlord does n o t , here, dispute that the Apartment was subject to the Rent Stabilization Law ( R S L ) , and that Landlord charged rents in excess of the lawful stabilized rent. Landlord contends, instead, as it did in support of its PAR, that the overcharges found by the RA were not willful, because Tenants d i d .. not use the Apartment as their primary residence, and neither Landlord, nor Tenants, believed that the Apartment was rentstabilized. Landlord relies, in part, upon an affidavit that Michele Weinberg, t h e director of residential leasing f o r the Bui 1ding , submitted in response to DHCR's final notice, stating that treble damages would be imposed. Ms. Weinberg averred that she had been "under the impression that it was legal to exempt a stabilized apartment if it was being rented for professional purposes.Il The affidavit is attached as a portion of Exhibit C 4 [* 6] to the petition. In additton, Landlord notes t h a t Tenants' leases provided that Tenants and Landlord understood that the Apartment was exempt from the RSL, because Tenants, whose primary residence was in St. James, New York, would not be using the Apartment as their primary residence. Nevertheless, it is well eatablished that parties to a lease may not, by agreement, exempt a rent-stabilized apartment from application of the RSL, and that an agreement to waive the primary residence requirement provisions of the RSL i s void. Draper v Georgia P r o p s . , 94 NY2d 809 (1999); see also M a t t e r of G r i m v S t a t e of N . Y . Div. of Hous. and Community Renewal O f f . of R e n t A d m i n . , 6 8 AD3d 29 (1st Dept 2009) , affd 15 NY3d 3 5 8 Drucker v Mauro, 3 0 AD3d 37 (1st Dept 2006). (2010); Accordingly, it was .. not unreasonable for the RA to find, and f o r the Deputy Commissioner to agree, t h a t Landlord had failed to show, by a preponderance of the evidence, that it had not willfully collected overcharges. It appears to be true, as Landlord argues, that t h i s is not a case where a landlord tricked an unwitting tenant. The tenants here are savvy business people. Nonetheless, Landlords's illicit arrangement with Tenants constituted a clear circumvention of the RSL, and it is neither arbitrary nor unjust t h a t Landlord's attempt to exempt the 5 [* 7] Apartment from rent atabilization should carry the risk of triple damages on the excess rent that Landlord collected. In Policy Statement 8 9 - 2 , DHCR provided a safe harbor to the burden of proof in establishing lack of willfulness shall be deemed to have been met . . . [wlhere an owner adjuste the rent on his or her own within the time afforded to interpose an answer to the [administrative] proceeding and submits proof to the DHCR t h a t he or she has tendered, in good faith, to the tenant a full refund of all excess rent collected, plus interest. See Matter of Two Lincoln S q . A s s o c . v New york State D i v . of Hous. and Urban Renewal, 191 AD2d 281 (1st Dept 1993). Here, prior to answering the tenants' complaint, but instead, retained such overcharges f o r almost a year, and even then, Landlord retained a portion of the overcharges and failed to tender any interest on the overcharges. Accordingly, Landlord cannot avail itself of the protection offered by the safe harbor. See Matter of East 163rd St. v N e w York State Div. of Hous. and Community R e n e w a l , 4 Misc 3d 169 (Sup Ct, Bx County 2004) (failure to comply with terms of Policy Statement 89-2 bars reliance thereon). In addition to arguing that the overcharges were not willful, Landlord contends that the Rent Administrator's 6 [* 8] calculation of overcharges should not have taken into account a freeze on the legal regulated rent from April 1 , 2007, through November 1, 2009, that resulted from landlord's failure to file registration statements for the Apartment throughout that time. At best, Landlord raised this issue only obliquely in its PAR, when, in the affidavit referred to above, Ms. Weinberg expressed puzzlement at the difference between her calculation of overcharges and the ¬ ? A ' s calculation thereof. Nonetheless, the Court will take the matter to have been raised. RSL 5 26-517 ( e ) provides that a landlord's failure to properly f i l e annual rent registration statements bars the landlord ''fromapplying for or collecting any r e n t in excess of the legal regulated rent in effect on the date of the last .. preceding registration statement . . . Holdings, LLC, 7 2 AD3d 529 .If See Jazilek v & a r t (1st Dept 2010)- Landlord statea t h a t it filed late registrations on September 13, 2010, and that, accordingly, the freezes should have been retroactively lifted. However, a late-filed registration statement has no retroactive effect on the legal regulated rent. Such a filing only allows the freeze imposed f o r failure to register to have no further, prospective, effect on t h e legal regulated rent. RSL 5 26-517 (e). RSL 5 26-517 (e) provides that: 7 - [* 9] provided that increases in the legal regulated rent were lawful except f o r the failure to file a timely registration, the owner, upon the service and filing of a late registration, shall not be found to have collected an overcharge at any time p r i o r to the filing of the late registration. Here, however, Landlord's rent increases in 2005 and 2007 were unlawful for reasons independent of landlord's failure to file timely rent registration statements. Consequently, Landlord's late-filed statement is not a b a r to the imposition of triple damages calculated on the basis of the properly imposed freeze. Matter of BN R e a l t y A s s o c . v S t a t e of N . Y . D i v . of Hous. & Community R e n e w a l , 254 An2d 7 (1st Dept 1998). f Finally, Landlord's argument that it was' d e n i e d due pr8cess is addressed solely to the RA's.order; the argument in its PAR; and Landlord does not mention it in its reply memorandum. Suffice to say, Landlord has not met its b u r d e n of demonstrating that it had not been given such process as had been due. No further discussion of that argument is needed here. 8 [* 10] . , - Accordingly, i t is hereby ADJUDGED t h a t t h e petition is denied and t h e proceeding is dismissed without costs. -@=- XQ ENTER : Dated: March 2012 N e w York, NY ^ . 9 _. .. .. - . . - _ .

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