322 W. 57th Owner, LLC v Grozea

[*1] 322 W. 57th Owner, LLC v Grozea 2006 NY Slip Op 52586(U) [15 Misc 3d 1109(A)] Decided on September 18, 2006 Civil Court Of The City Of New York, New York County Finkelstein, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 18, 2006
Civil Court of the City of New York, New York County

322 West 57th Owner, LLC, Petitioner-Landlord,

against

Filip Grozea and Various Other Tenants, Respondents-Tenants,



L&T 60472/06

Marc Finkelstein, J.

The Court has before it 34 holdover proceedings brought by petitioner against various tenants residing at 322 West 57th Street (known as "the Sheffield"), all represented by the same counsel, and with the Grozea proceeding having the lowest index number. All are what are known as "no cause" holdover proceedings, based only upon expiration of respondents' leases and petitioner's claim that their apartments are not subject to rent control or rent stabilization.

Counsel moved to dismiss the Grozea proceeding on the basis that petitioner violated a specific provision of the Martin Act General Business Law (GBL) §352-eeee(4). Counsel then moved to consolidate 322 West 57th Owner LLC v Rovelli, L&T 63326/06, and 322 West 57th Owner LLC v Penhurst Productions, Inc., L&T 63319/06, with the Grozea proceeding and to dismiss all three proceedings on the same GBL §352-eeee(4) grounds. The motion to consolidate was granted. Thirty one other cases brought against tenants at the Sheffield, with the same counsel and the same issue of law, were referred to this Part: 322 West 57th Owner, LLC v Kleiman, 66403/06; v Persits, 66406/06; v Gibson, 66410/06; v Mazzella, 66409/06; v Moulton, 66416/06; v Lenoble Lumber Co., Inc., 66419/06; v Ragoowansi, 66420/06; v McKesson, 66421/06; v McCarthy, 66423/06; v Roseman, 66426/06; v Gem Investment Advisor, Inc., 66429/06; v Mavroides, 66430/06; v Ames, 66432/06; v Gladstein, 66433/06; v Rood, 66435/06; v Woodland, 66437/06; v Rijsinghani, 66439/06; v Stock, 66441/06; v Cohen, 66442/06;

v Bandera, 66444/06; v Rosenzweig, 67375/06; v McRay,67376/06; v Zehner, 67378/06;

v Sturm, 67382/06; v Schoenblum, 70837/06; Naderi, 70839/06; v Holdsworth, 75562/06;

v Leicht, 80002/06; v Campbell, 80003/06; v Lorimer, 80004/06; v Callahan, 80005/06.

By stipulation, all parties in all 34 cases agreed to be bound by this Court's decision on the pending motion to dismiss on the GBL §352-eeee(4) grounds. In its decision in Paikoff v Harris, 178 Misc 2d 366, 369 (Civ Ct, Kings County 1998), also involving tenant protections in cooperative and condominium conversions under the Martin Act, this Court noted: Both sides are represented by able counsel and in regard to their Martin Act contentions, the Court does not feel that either is so much being disingenuous or guilty of circular reasoning (as each claims), but rather that both are sailing [*2]colorable arguments in legally uncharted waters.

Although involving a different provision of the Martin Act, the same can be said in these cases.

The underlying facts are undisputed. Petitioner, as sponsor, is attempting to convert the Sheffield from rental to condominium ownership. In June of 2005 tenants received the proposed offering plan ("red herring"). It is being reviewed by the Attorney General and has not yet been accepted for filing. Respondents reside in unregulated apartments with rents exceeding $2,000.00. Their leases have now expired and have not been renewed.[FN1]

Only respondents Grozea, Rovelli and Penhurst Productions have submitted affidavits. Their circumstances may generally be similar to those of the other respondents. Respondent Rovelli's initial lease ran from August 9, 1997 through August 31, 1999, at a rent of $2,610, and was renewed until the most recent one expired on February 28, 2006. The initial residential lease of respondent Penhurst Productions Inc. ran from February August 9, 1997 through August 31, 1999, at a rent of $3,575, with the president and sole shareholder residing in the apartment and the lease being renewed until the most recent one expired on February 28, 2006. Respondent Grozea moved in pursuant to his only lease running for six months, from May 12, 2005 through November 12, 2005, at a rent of $2,165. [FN2]

All 34 respondents are holdovers, their leases have expired and their tenancies are not governed by any rent regulation. In fact, the first page of respondent Grozea's lease (Exhibit C), begins, in bold, capital letters: "THIS LEASE AND THE APARTMENT ARE NOT SUBJECT TO RENT STABILIZATION, RENT CONTROL OR ANY OTHER RENT REGULATION", and further states: "Owner is under no obligation to renew or extend this Lease upon its expiration or termination."[FN3] Also, respondents Grozea, Rovelli and Penhurst Productions [*3]indicate (perhaps along with the other respondents) that they "have been eagerly awaiting the filed offering plan so that they could have the opportunity to purchase their apartments."

The above circumstances of the tenants herein are in marked contrast, for example, to the circumstances of the tenant in Paikoff v Harris, 178 Misc 2d 366 (Civ Ct, Kings County 1998), affd as mod, 185 Misc 2d 372 (App Term, 2nd Dept 1999). Mr. Harris was a public assistance recipient. His initial unregulated rent was $625.00 per month, with a renewal at $500.00, and a subsequent renewal at $850.00, which he claimed constituted an unconscionable rent increase. The offering plan having been declared effective, Mr. Harris sought, and was found unequivocally entitled to Martin Act protections under §352-eeee (2)(c) (ii) and (iv) protection so that he could remain as a tenant and not be subject to eviction proceedings without cause or "unconscionable" rent increases.[FN4]

Respondents themselves cite the legislative intent in enacting GBL §352-eeee, as specifically stated in Chapter 555 of the Session Laws of 1982:

. . . . it is sound public policy to encourage such conversions while at the same time, protecting tenants in possession who do not desire or who are unable to purchase the units in which they reside from being coerced into vacating such units by reason of deterioration of services or otherwise or into purchasing such units under the threat of imminent eviction. (Emphasis added).

As to respondents' specific legal claims in this motion to dismiss, they allege that the landlord wishes to evict them for no reason other than "so that it can sell the apartment to non-tenants as quickly as it can, without regard for the tenants' rights as tenants-in-occupancy", and that commencement of these proceedings "constitutes a course of conduct by which it seeks to harass the tenants out of the building." As the conversion process at the Sheffield is only at the "red herring" stage, and the offering plan has not been declared effective, respondents would not be able to invoke the tenant protections provided in GBL §352-eeee(2)(c)(ii) or (iv) against evictions without cause and unconscionable rent increases. Thus, the single basis for their motion is that the landlord's actions violate their rights under GBL §352-eeee(4). They conclude: It is plain that denying a lease to a tenant or seeking a tenant's eviction is a course of conduct which disturbs the comfort, repose, peace or quiet of the tenant and accordingly constitutes the type of conduct which the explicit provisions of this section [GBL §352-eeee(4)] are designed to prevent. . . . The protections afforded by Section 352-eeee pertain to the entire conversion process, which indisputably commences with the submission of the proposed conversion plan. There is no reason to believe these protections are non-existent during the red herring' stage of the conversion process.

GBL §352-eeee(4) provides, in full: It shall be unlawful for any person to engage in any course of conduct, including, but not limited to, interruption or discontinuance of essential services, which [*4]substantially interferes with or disturbs the comfort, repose, peace or quiet of any tenant in his use or occupancy of his dwelling unit or the facilities related thereto. The attorney general may apply to a court of competent jurisdiction for an order restraining such conduct and, if he deems it appropriate, an order restraining the owner from selling the shares allocated to the dwelling unit or the dwelling unit itself or from proceeding with the plan of conversion; provided that nothing contained herein shall be deemed to preclude the tenant from applying on his own behalf for similar relief.

Petitioner's position is that it can lawfully recover possession of respondents' apartments on the sole basis that they are residing in unregulated apartments and their leases expired after the red herring was received and prior to the Attorney General accepting the plan for filing. It argues that, at this point, respondents neither have the vested right to purchase their apartments nor the limited eviction and unconscionable rent increase protections of the Martin Act because they are only triggered upon the Attorney General's acceptance of the offering plan, not at the "red herring" stage and that, in any case, its refusal to renew respondents' expired leases and its commencement of these proceedings does not constitute a violation of GBL §352-eeee(4).

Therefore, the issue before the Court is whether, under the circumstances presented, GBL §352-eeee(4) precludes petitioner from instituting these "no cause" holdover proceedings. It would seem that rather than arguing in the negative that "there is no reason to believe these protections are non-existent during the red herring stage", in order to prevail on their motion, respondents have the burden of affirmatively demonstrating, with sufficient statutory and/or case law support, both that commencement of these proceedings is the type of course of conduct that the landlord is prohibited from engaging in by GBL §352-eeee(4) and, assuming it is, that respondents entitlement to protection from said conduct under GBL §352-eeee(4) is triggered when the landlord submits the proposed conversion plan, rather than the later date when the Attorney General accepts the offering plan. If respondents cannot provide sufficient support for both factors, they cannot prevail on this motion.

In support of their position that commencement of these proceedings is the type of conduct prohibited by §352-eeee(4), respondents cite two cases. The first, State of New York v Fashion Place Associates, 224 AD2d 280 (1st Dept 1996), was brought under the Martin Act, but by a government agency and after the cooperative plan had been declared effective. Moreover, the sponsor had been determined to have unlawfully terminated the tenants' rent stabilization status and to have made material misstatements of fact and failed to disclose material facts in the offering plan. In its affirmance, the Appellate Division concluded:

The acts of the Sponsor in denying the tenants rent regulated leases and asserting that the premises were decontrolled also constituted violations of the anti-harassment provision of the Martin Act (General Business Law §352-eeee[4]), and Executive Law §63(12), which prohibit repeated illegal or fraudulent acts committed in the ordinary course of business (State of New York v 820 Assocs., 116 Misc 2d 901, affd 93AD2d 1008).

The sponsor was permanently enjoined from engaging in the offer of sale of real estate securities within New York State and directed to provide the effected tenants with all the protections of the rent stabilization laws and regulations, including providing them with rent stabilized leases. [*5]

Similar circumstances were extant in the second case cited by respondents, State of New York v 820 Associates, 116 Misc 2d 901 (Sup Ct, NY County 1982), affd 93AD2d 1008 (1st Dept 1983). The tenants were also rent stabilized and the matter was also commenced by the Attorney General under the Martin Act. The court found that the "fraudulent and harassing techniques" used by the landlord against the tenants, which were intended to induce the tenants to vacate so the landlord could control the apartments and have them included in the 35% necessary for conversion, and which were "within the proscription of the Martin Act", included repeatedly suing a tenant for non-payment when the rent was actually paid, threatening to withhold essential services, renting to bogus prime tenants, who were the landlord's friends, relatives and business associates, and seeking, without justification, to obtain an apartment for the use of an immediate family member. As a result, the sponsor was preliminarily restrained from involvement in the "cooperative interests" in the subject building.

The landlords' conduct in Fashion Place Associates and 820 Associates, id, which was found to violate the Martin Act, seems considerably different and distinguishable from the conduct of the petitioner in the cases at bar. The tenants in Fashion Place and 820 Associates were rent stabilized and clearly entitled to stabilized renewal leases. Here, respondents are not rent stabilized and there were no stabilized leases to renew. In Fashion Place and 820 Associates, the landlords' conduct was clearly fraudulent and illegal. See also, State of New York v Fogelson, NYLJ, February 11, 1987, p 7, col 1 (Sup Ct, NY County). Significantly, respondents herein do not point to any similar material misstatements of fact or failure to disclose facts in the offering plan, nor any repeated illegal or fraudulent acts by petitioner.

In support of their other position that there is no reason to believe the GBL §352-eeee(4) protections do not exist during the "red herring" stage, respondents cite State of New York v 820 Associates, supra, and 490 Ocean Associates v Abrams, Sup Ct, NY County, Index No. 16351/86, December 19, 1986, n.o.r. (annexed as Exhibit A to the memorandum in support), affd 128 AD2d 1027 (1st Dept 1987), appeal dismissed 71 NY2d975 (1988).

State of New York v 820 Associates, supra, does stand for the proposition that the regulations as to the procedure for the Attorney General's preliminary review of a proposed conversion plan do not proscribe the Attorney General instituting an action to enjoin the conduct of a sponsor who the Attorney General finds has engaged in fraudulent and deceptive practices. The decision of the Court below, which was affirmed, concluded: The interpretation urged by defendants would result in the anomalous situation of permitting a sponsor to engage in, or lay the groundwork for, fraudulent and deceptive practices so as to assure the success of a conversion plan once the final plan is filed. This theory that a sponsor can engage in fraudulent and harassing tactics with impunity if done early is repugnant to the remedial purpose and the meaning of the statute. The Attorney General and this court are not powerless to prevent, or stop, a scheme of early fraud and harassment.

GBL §352eeee(4) provides: The attorney general may apply to a court of competent jurisdiction for an order restraining such [harassing] conduct and, if he deems it appropriate, an order restraining the owner from selling the shares allocated to the dwelling unit or the [*6]dwelling unit itself or from proceeding with the plan of conversion.

GBL §352eeee(4) does go on to provide that "nothing contained herein shall be deemed to preclude the tenant from applying on his own behalf for similar relief."

The Court has not been made aware of any action instituted by the Attorney General or the tenants of the Sheffield, in a court of competent jurisdiction, to enjoin and restrain the conduct of petitioner as sponsor of the conversion plan at the Sheffield. Nor has the Court been made aware of any finding by the Attorney General, or any other government agency or court of law, that petitioner has engaged in fraudulent and deceptive practices. Housing Court does not have the jurisdiction to grant the type of injunctive relief provided for in GBL §352eeee(4) and granted by courts of competent jurisdiction in State of New York v 820 Associates, and 490 Ocean Associates v Abrams, supra.

However, even assuming, arguendo, that the "similar relief" reserved for the tenant at the end of GBL §352-eeee(4), as quoted above, encompasses a motion by the tenant to dismiss a holdover proceeding in Housing Court on the ground that the sponsor's otherwise lawful act of commencing these proceedings constitutes a violation of GBL §352eeee(4), and that this Court is a court of competent jurisdiction to determine the issues thus raised, nevertheless, respondents have not met their burden of demonstrating tactics engaged in by petitioner which this Court, under present law, can determine to be reasonably equivalent to those tactics which the Appellate Division, First Department found in State of New York v Fashion Place Associates and State of New York v 820 Associates, supra, to be proscribed by the Martin Act, and which would warrant dismissal of these proceedings.

However unfortunate the landlord forcing respondents to face eviction without cause may be perceived to be, the respondents rents are in excess of $2,000, their tenancies are unregulated,

the leases indicate their apartments are not subject to rent regulation, and both the leases and luxury deregulation provisions of the 1997 RRRA provide that the owner is not obligated to renew or extend the lease upon expiration or termination. As a result, petitioner's refusal to

renew respondents' leases appears, presently, to be an otherwise legal action on its face, and has not been shown to be illegal under the Martin Act. Thus, after careful consideration, the Court finds that it is constrained to deny respondents' motion to dismiss.

The situation faced by the respondents herein may presently or in the near future be faced by many tenants of deregulated apartments in buildings undergoing cooperative or condominium conversion, whether deregulation results from rents over $2,000, expiration of tax abatement benefits and exemptions or vacancy decontrol. They are now or will be free-market tenants. It is unclear whether the wholesale refusal to renew leases and resultant commencement of eviction proceedings without cause against deregulated tenants when the conversion process is at the "red herring" phase and the plan has not yet been accepted for filing, was an intended or unintended consequence of the provisions of the Rent Regulation Reform Act of 1997 related to luxury deregulation and/or other provisions relative to deregulation.

In any case, now that said intended or unintended consequences may be faced by many deregulated tenants, given the present dearth of statutory or case law support for respondents' position, it would appear this is an issue for the legislature, rather than the courts. Respondents [*7]themselves append an article from the New York Times of February 27, 2006 (Section B, p 3, col 1) which they claim describes the landlord's "systematic campaign to empty the building of

tenants", but which also includes the comments of a legislator familiar with the issues, to wit: Gale A. Brewer, a city council-woman whose district includes the Upper West Side, has called for greater protections and a moratorium on decontrolling rent regulations. The free-market tenants have a new challenge, which is particularly unfair,' Ms. Brewer said. They have no choices and are being forced out. This is something we are trying to change in Albany.' (emphasis added).

As the motion to dismiss is denied, these matters are all restored to the Part H calendar on October 30, 2006 at 9:30 A.M., in Room 1164B. If they are not settled, the parties and counsel should be prepared to be sent out for trial on that date.[FN5] This constitutes the decision and order of the Court.

Dated: New York, New York

September 18, 2006

_________________________MARC FINKELSTEIN

JHC Footnotes

Footnote 1:The reply affirmation refers to other unnamed Sheffield tenants who are rent stabilized and allege petitioner violated GBL §352-eeee by taking away their health club and storage closets. The Court disregards these allegations both because the issue here is the eviction without cause of respondents, all of whom are unregulated, and because it is improper to raise these issues for the first time in reply papers, the function of which is to address arguments made in opposition to the position taken by the movant and not to permit the movant to introduce new arguments and evidence in support of the motion. See, Lawrence v Esplanade Gardens, Inc., 213 AD2d 216 (1st Dept 1995); Ritt v Lenox Hill Hospital, 182 AD2d 560 (1st Dept 1992).

Footnote 2:The leases commenced after the Rent Regulation Reform Act ("RRRA") of 1997 which provided, inter alia, that any apartment with a monthly rental of two thousand dollars or more per month after the effective date of June 20, 1997 becomes deregulated when it becomes vacant.

Footnote 3:See, Parkchester Preservation Co., L.P. v Hanks, 185 Misc 2d 786 (Civil Court, Bronx County 2000) and Park West Village Associates v Nishoika, 187 Misc 2d 243 (App Term, 1st Dept 2000), where, under similar lease language (although at the post-condominium conversion stage), it was found that the tenants were not protected from eviction under GBL §352-eeee.

Footnote 4: However, on appeal, it was determined that the rent of $850.00 was not unconscionable.

Footnote 5:Counsel's motions to be relieved as attorney for respondents Grozea and Strum have been granted on default and on consent, respectively. These respondents may appear with new counsel or pro se. Motions for entry of judgment for outstanding use and occupancy against respondents Lorimer and Rijsinghani have been withdrawn and the remaining such motions have been adjourned to October 5, 2006.