Dugan v London Terrace Gardens, L.P.
Annotate this CaseDecided on November 13, 2017
Supreme Court, New York County
William Dugan, MARSHA D'YANS, GEORGETTE GAGNON, LOWELL D. KERN, MICHAEL MCCURDY, JOSE PELAEZ, TRACY SNYDER, MICHAEL J. WALSH, LESLIE M. MACK, ANITA ZITIS, and JAMES DOERR, on Behalf of Themselves and All Other Persons Similarly Situated, Plaintiffs,
against
London Terrace Gardens, L.P., Defendant.
603468/2009
APPEARANCES:
For Plaintiff Class
William Gribben Esq.
Ronald S. Languedoc Esq.
Himmelstein, McConnell, Gribben, Donoghue & Joseph LLP
15 Maiden Lane, New York, NY 10038
Matthew D. Brinckerhoff Esq.
Hayley Horowitz Esq.
Emery Celli Brinckerhoff & Abady LLP
600 5th Avenue, New York, NY 10020
Ronald J. Aranoff Esq.
Bernstein Liebhard LLP
10 East 40th Street, New York, NY 10016
For Defendant
Robert D. Goldstein Esq.
Paul N. Gruber Esq.
Borah, Goldstein, Altschuler, Nahins & Goidel, P.C.
377 Broadway, New York, NY 10013
Harry Frischer Esq.
Proskauer Rose LLP
11 Times Square, New York, NY 10036
Lucy Billings, J.
I. BACKGROUND
Plaintiffs, a class of former and current tenants at defendant's building complex London Terrace Gardens in New York County, claim that defendant charged them excessive rents under applicable rent stabilization laws and equivalent rent control laws. Plaintiffs claim defendant [*2]unlawfully removed over 50% of its apartments from rent stabilization or control and charged their tenants excessive rent, during and after defendant's receipt of a New York City "J-51" tax exemption or abatement for their apartments under New York Real Property Tax Law § 489(1)(a) and New York City Administrative Code §§ 11-243 and 11-244 (formerly §§ J51-2.5 and J51-5). The court previously certified a class of "all past and current tenants of London Terrace Gardens who have resided in units that were deregulated during defendant's receipt of J-51 tax benefits." Dugan v. London Terrace Gardens, L.P., Index No. 603468/2009, slip op. at 4 (Sup. Ct. NY Co. Sept. 5, 2017). See Dugan v. London Terrace Gardens, L.P., 45 Misc 3d 362, 380 (Sup. Ct. NY Co. 2013).
Plaintiffs now move for summary judgment dismissing defendant's counterclaims and affirmative defenses and granting a declaratory judgment on their first and fifth claims, returning these deregulated units to rent stabilization, and determining the method for calculating the refund due to each class member for overcharges of rent according to plaintiff's proposed method. C.P.L.R. §§ 3001, 3212(b) and (e). Defendant cross-moves for summary judgment dismissing the complaint and granting a judgment on defendant's counterclaims, C.P.L.R. § 3212(b), or, alternatively, declaring that the base date for calculating any rent overcharge is November 13, 2005, and determining the method for calculating any overcharge according to defendant's proposed method. C.P.L.R. §§ 3001, 3212(b) and (e).
II. DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT
Defendant insists that Roberts v. Tishman Speyer Props., L.P., 13 NY3d 270 (2009), the precedent for plaintiffs' overcharge claims, may not be applied retroactively. This court, however, relying on subsequent Appellate Division, First Department, authority, previously held that Roberts may be applied retroactively. Dugan v. London Terrace Gardens, L.P., 45 Misc 3d at 366-68. This holding has preclusive effect as the law of the case. People v. Evans, 94 NY2d 499, 503 (2000); Glaze Teriyaki, LLC v. MacArthur Properties I, LLC, 2017 WL 5180546 at *2-3 (1st Dep't Nov. 9, 2017); Excelsior 57th Corp. v. Excel Assoc., 150 AD3d 540, 540 (1st Dep't 2017); Sasson v. TLG Acquisition LLC, 150 AD3d 459, 460 (1st Dep't 2017). This court's previous holding that C.P.L.R. § 213-a limits only the class members' damages similarly precludes defendant's defense that the statute of limitations bars the claims of class members entering leases before the base date. Dugan v. London Terrace Gardens, L.P., 45 Misc 3d at 368.
Collateral estoppel, however, bars any class member who was a party to a luxury deregulation order issued by the New York State Division of Housing and Community Renewal (DHCR) based on Income Certification Forms served after July 1, 2003, when defendant began receiving J-51 tax benefits. The "luxury deregulation" or "luxury decontrol" provisions of the state and city rent stabilization and rent control laws allow a landlord to remove apartments from rent stabilization or control and charge market rent when tenants' incomes exceed specified thresholds. N.Y.C. Admin. Code §§ 26-403.1, 26-504.3. Since class members who were parties to a luxury deregulation proceeding had a full and fair opportunity to litigate defendant's luxury deregulation of their apartments and raise the issue of defendant's receipt of J-51 benefits, those class members are estopped from relitigating the same claims here. Gersten v. 56 7th Ave. LLC, 88 AD3d 189, 202-203 (1st Dep't 2011). Plaintiffs do not maintain that those class members' claims here are in any way different from the claims those members raised or were entitled to raise in the prior DHCR deregulation proceedings. See Leight v. W7879 LLC, 128 AD3d 417, 418 (1st Dep't 2015), aff'd on other grounds, 27 NY3d 929 (2016).
Consequently, the court grants defendant's cross-motion for summary judgment insofar as it seeks to dismiss plaintiffs' claims only to the extent of dismissing all claims on behalf of any class member who was a party to a DHCR luxury deregulation order based on Income Certification Forms served after July 1, 2003. C.P.L.R. § 3212(b) and (e). The court denies the remainder of defendant's cross-motion for summary judgment insofar as it seeks to dismiss plaintiffs' claims. C.P.L.R. § 3212(b).
III. LONDON TERRACE GARDENS APARTMENTS' REGULATORY STATUS
When a landlord receives a New York City J-51 tax exemption or abatement for the [*3]landlord's apartments under New York Real Property Tax Law § 489(1)(a) and New York City Administrative Code §§ 11-243 and 11-244, the apartments become subject to rent regulation, N.Y.C. Admin. Code §§ 11-243(i)(1), 26-504(c), and the landlord may not use the luxury deregulation provisions as long as it is receiving J-51 benefits. N.Y.C. Admin. Code §§ 26-403(e)(2)(j) and (e)(2)(k), 26-504.1, 26-504.2(a); Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285-86; Taylor v. 72A Realty Assoc., L.P., 151 AD3d 95, 100-101 (1st Dep't 2017); 72A Realty Assoc. v. Lucas, 101 AD3d 401, 401-402 (1st Dep't 2012); Gersten v. 56 7th Ave. LLC, 88 AD3d at 196. Once the building's J-51 tax benefits expire, all apartments that were subject to rent stabilization independent of the landlord's receipt of the J-51 benefits will remain rent stabilized, but then may be deregulated pursuant to the Rent Stabilization Law (RSL), including via luxury deregulation. NY Real Prop. Tax Law § 489(7)(b)(2); N.Y.C. Admin. Code § 26-504(c); Park v. New York State Div. of Hous. & Community Renewal, 150 AD3d 105, 112 (1st Dep't 2017); Taylor v. 72A Realty Assoc., L.P., 151 AD3d at 100-101; Schiffren v. Lawlor, 101 AD3d 456, 457 (1st Dep't 2012); 72A Realty Assoc. v. Lucas, 101 AD3d at 401-402.
As for apartments not subject to rent stabilization but for the receipt of J-51 benefits, the landlord may deregulate those apartments when the benefits expire, as long as each lease and lease renewal while benefits were received included a notice to the tenant that the apartment would be deregulated when the J-51 tax benefits expire, giving an approximate date. NY Real Prop. Tax Law § 489(7)(b)(2); N.Y.C. Admin. Code § 26-504(c); 9 N.Y.C.R.R. § 2520.11(o); Bramwell v. New York State Div. of Hous. & Community Renewal, 147 AD3d 556, 556-57 (1st Dep't 2017); Gersten v. 56 7th Ave. LLC, 88 AD3d at 194; East W. Renovating Co. v. New York State Div. of Hous. & Community Renewal, 16 AD3d 166, 166-67 (1st Dep't 2005). The landlord must show that it provided these apartments' tenants the required notice throughout the entire J-51 benefits period, not just when it was aware that the apartments were subject to rent stabilization, as the RSL provision requiring notice, N.Y.C. Admin. Code § 26-504(c), mandates strict compliance without exceptions, however equitably compelling the circumstances. 72A Realty Assoc. v. Lucas, 32 Misc 3d 47, 49-50 (App. Term 1st Dep't 2011), aff'd on other grounds, 101 AD3d 401.
Defendant does not dispute that it received J-51 benefits from July 1, 2003, through June 30, 2014, and thus all apartments in defendant's building complex were subject to rent stabilization and not subject to luxury deregulation or decontrol during this period. N.Y.C. Admin. Code §§ 11-243(i)(1), 26-403(e)(2)(j) and (k), 26-504(c), 26-504.1, 26-504.2(a); Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 286; Taylor v. 72A Realty Assoc., L.P., 151 AD3d at 100-101; 72A Realty Assoc. v. Lucas, 101 AD3d at 401-402; Gersten v. 56 7th Ave. LLC, 88 AD3d at 196. Therefore all class members who leased apartments in defendant's complex during the J-51 benefits period were entitled to a rent stabilized lease for the duration of J-51 benefits period. Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 286; Taylor v. 72A Realty Assoc., L.P., 151 AD3d at 100-101; 72A Realty Assoc. v. Lucas, 101 AD3d at 401-402; Gersten v. 56 7th Ave. LLC, 88 AD3d at 196.
A. Apartments Not Subject to Rent Stabilization but for Defendant's Receipt of J-51 Tax Benefits
Any class member leasing an apartment, during the J-51 benefits period, that was not subject to rent stabilization but for defendant's receipt of the benefits, was entitled to a rent stabilized lease after their expiration until the tenant vacated the apartment, unless defendant shows it provided the tenant the required notice in every lease and lease renewal offered to that tenant. NY Real Prop. Tax Law § 489(7)(b)(2); N.Y.C. Admin. Code § 26-504(c); 9 N.Y.C.R.R. § 2520.11(o); Bramwell v. New York State Div. of Hous. & Community Renewal, 147 AD3d at 556-57; Gersten v. 56 7th Ave. LLC, 88 AD3d at 194; East W. Renovating Co. v. New York State Div. of Hous. & Community Renewal, 16 AD3d at 166-67; 72A Realty Assoc. v. Lucas, 32 Misc 3d at 49-50. Defendant also may not use the luxury deregulation provisions to remove such an apartment from rent stabilization, even after expiration of the J-51 benefits. Taylor v. [*4]72A Realty Assoc., L.P., 151 AD3d at 101-102; Schiffren v. Lawlor, 101 AD3d at 46; 73 Warren St., LLC v. State of NY Div. of Hous. & Community Renewal, 96 AD3d 524, 529 (1st Dep't 2012). Any class member who entered a lease for such an apartment after the J-51 benefits period expired, however, is not entitled to a rent stabilized lease. NY Real Prop. Tax Law § 489(7)(b)(2); N.Y.C. Admin. Code § 26-504(c); 9 N.Y.C.R.R. § 2520.11(o); Park v. New York State Div. of Hous. & Community Renewal, 150 AD3d at 112.
B. Apartments Subject to Rent Stabilization Independent of Defendant's Receipt of J-51 Tax Benefits
Any class member leasing an apartment, during the J-51 benefits period, that would have been subject to rent stabilization independent of defendant's receipt of the benefits, was entitled to a rent stabilized lease continuing after their expiration until defendant lawfully deregulated the apartment under the RSL. NY Real Prop. Tax Law § 489(7)(b)(2); N.Y.C. Admin. Code § 26-504(c); 9 N.Y.C.R.R. § 2520.11(o); Bramwell v. New York State Div. of Hous. & Community Renewal, 147 AD3d at 556-57; Gersten v. 56 7th Ave. LLC, 88 AD3d at 194; East W. Renovating Co. v. New York State Div. of Hous. & Community Renewal, 16 AD3d at 166-67. Defendant was not required to adhere to the notice requirements of New York Real Property Tax Law § 489(7)(b)(2) or New York City Administrative Code § 26-504(c) before deregulating the apartments. Bramwell v. New York State Div. of Hous. & Community Renewal, 147 AD3d at 556-57. Defendant also was permitted to deregulate these apartments via the luxury deregulation provisions. Park v. New York State Div. of Hous. & Community Renewal, 150 AD3d at 112; Taylor v. 72A Realty Assoc., L.P., 151 AD3d at 100-101; 72A Realty Assoc. v. Lucas, 101 AD3d at 401-402; Schiffren v. Lawlor, 101 AD3d at 457. Nevertheless, any class member who entered a lease for such an apartment after the J-51 benefits period still is entitled to a rent stabilized lease unless defendant shows that it lawfully deregulated the apartment after expiration of the benefits. Park v. New York State Div. of Hous. & Community Renewal, 150 AD3d at 112; Taylor v. 72A Realty Assoc., L.P., 151 AD3d at 100-101; 72A Realty Assoc. v. Lucas, 101 AD3d at 401-402; Schiffren v. Lawlor, 101 AD3d at 457.
IV. CALCULATION OF LEGAL REGULATED RENTS AND OVERCHARGES
To determine the amount of any overcharge, defendant first must establish the legal regulated rent, defined as the rent charged on the base date plus any subsequent lawful increases. 9 N.Y.C.R.R. §§ 2520.6(e), 2526.1(3)(i). The base date is defined as the most recent of (1) the date four years before the overcharge complaint or (2) the date when the apartment became rent regulated. 9 N.Y.C.R.R. § 2520.6(f); Gordon v. 305 Riverside Corp., 93 AD3d 590, 592 (1st Dep't 2012).
C.P.L.R. § 213-a, the RSL, N.Y.C. Admin. Code § 26-516(a), and the Rent Stabilization Code (RSC), 9 N.Y.C.R.R. § 2526.1(a)(2), all expressly provide that no determination, calculation, or award of any overcharge may be based on an overcharge more than four years before commencement of the overcharge action, limiting the court's consideration of any rental history before the base date. The court may look at the rental history before the base date, however, if plaintiffs establish that defendant engaged in fraud in setting the rent on the base date or in removing the apartment from rent regulation, which plaintiffs do not allege here. Conason v. Megan Holding, LLC, 25 NY3d 1, 16 (2015); Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 367 (2010). See Taylor v. 72A Realty Assoc., L.P., 151 AD3d at 104.
Nevertheless, even absent evidence of fraud, defendant still must establish the legally regulated rent on the base date. Taylor v. 72A Realty Assoc., L.P., 151 AD3d at 105. The court may not merely accept the rent charged on the base date as the legally regulated rent, as that result would allow defendant to benefit from its own misapprehension of the law, under which defendant was illegally collecting a market rent on the base date. Id. at 106. Therefore defendant must examine the entire rental history for each apartment, determine the last lawful rent charged, and then add all lawful rent increases to which defendant was entitled up until the base date. Id. Defendant need not forfeit rent increases it was entitled to under the RSL and RSC solely [*5]because it failed to file registration statements. Id.
Consequently, for each apartment that would have been subject to rent stabilization independent of defendant's receipt of J-51 benefits, defendant must use the rent charged in that apartment's last rent stabilized lease, plus all increases to which defendant was entitled from that date until the base date of November 13, 2005, as the legal regulated rent for the calculation of any overcharge. For each apartment that was subject to rent stabilization solely due to defendant's receipt of J-51 benefits, defendant must use the rent charged in the last lease before July 1, 2003, plus all increases to which defendant establishes it was entitled from that date until the base date, as the legal regulated rent for the calculation of any overcharge. For any class member who entered a lease to an apartment after the base date, defendant first must calculate the base date rent by using one of the two methods specified above and then add all lawful increases up until the date that class member entered the lease.
V. DEFENDANT'S AFFIRMATIVE DEFENSES AND COUNTERCLAIMS
The court grants plaintiffs' motion for summary judgment insofar as it seeks dismissal of defendant's affirmative defenses and counterclaims to the following extent. C.P.L.R. §§ 3211(b), 3212(b) and (e). For the reasons explained above, the court grants plaintiffs summary judgment dismissing defendant's first, second, third, seventh, and twenty-fifth affirmative defenses and first and fourth counterclaims. Defendant discontinues its fourth and fifth affirmative defenses.
The court previously determined the issues raised by defendant's eighth, ninth, tenth, and twelfth through twenty-first affirmative defenses and second and third counterclaims against defendant when it raised them as claims against DHCR in a third party action that the court dismissed. Dugan v. London Terrace Gardens, L.P., 45 Misc 3d at 381. Therefore the law of the case requires dismissal of those defenses now. People v. Evans, 94 NY2d at 503; Glaze Teriyaki, LLC v. MacArthur Properties I, LLC, 2017 WL 5180546, at *2-3; Excelsior 57th Corp. v. Excel Assoc., 150 AD3d at 540; Sasson v. TLG Acquisition LLC, 150 AD3d at 460. The court's retroactive application of Roberts v. Tishman Speyer Props., L.P., 13 NY3d 270, does not violate defendant's rights under the Takings and Due Process Clauses of the United States and New York Consititutions, as sought by defendant's nineteenth, twentieth, and twenty-first affirmative defenses and second counterclaim. London Terrace Gardens, L.P. v. City of New York, 101 AD3d 27, 31 (1st Dep't 2012); Dugan v. London Terrace Gardens, L.P., 45 Misc 3d at 381. Rescission of defendant's receipt of the J-51 benefits, sought by its sixteenth affirmative defense and third counterclaim, is not available under the J-51 program, particularly when defendant shows no mutual mistake of law or of fact underlying defendant's application for the J-51 benefits. London Terrace Gardens, L.P. v. City of New York, 101 AD3d at 30-31; Dugan v. London Terrace Gardens, L.P., 45 Misc 3d at 381.
For the reasons explained above, the court denies plaintiffs' motion for summary judgment dismissing defendant's twenty-fourth affirmative defense regarding collateral estoppel. For similar reasons, the court denies plaintiffs' motion for summary judgment dismissing defendant's twenty-second and twenty third affirmative defenses of waiver regarding apartments previously subject to rent control. Any rent controlled apartment that was vacated became subject to rent stabilization, but defendant was free to charge an initial fair market rent. N.Y.C. Admin. Code § 26-512(b)(2); Park v. New York State Div. of Hous. & Community Renewal, 150 AD3d at 113. Defendant was required to register this initial rent, however, and send a notice to the new tenant of the tenant's right to file a Fair Market Rent Appeal (FMRA) challenging that rent. 9 N.Y.C.R.R. §§ 2521.1(a)(1); 2522.3; Park v. New York State Div. of Hous. & Community Renewal, 150 AD3d at 113. The tenant was required to file any FMRA within 90 days or, if defendant failed to send the required notice, within four years. Failure to file an FMRA within the applicable period bars any tenant from challenging that initial rent, unless the tenant shows evidence of fraud. Park v. New York State Div. of Hous. & Community Renewal, 150 AD3d at 113-14. Therefore any class member who leased an apartment that previously was rent controlled was required to challenge the initial rent stabilized rent within the applicable period.
The court also denies plaintiffs' motion for summary judgment dismissing defendant's sixth affirmative defense, as plaintiffs have not shown that the class excludes any tenants who have leased apartments exempt from rent regulation. Defendant thus is entitled to maintain this defense against any class member who has leased an exempt apartment before or after the J-51 benefits period. Finally, the court denies plaintiffs' motion for summary judgment dismissing defendant's eleventh affirmative defense, as plaintiffs have not presented any evidence or authority that defendant is not entitled to a setoff against a refund of overcharges that defendant owes to any class member who in turn owes defendant unpaid rent.
VI. CONCLUSION
As set forth above, the court grants defendant's cross-motion for summary judgment dismissing any claims on behalf of class members who were a party to a DHCR luxury deregulation order where an Income Certification Form was served after July 1, 2003, and otherwise denies defendant's cross-motion. C.P.L.R. § 3212(b) and (e). The court grants plaintiffs' motion for summary judgment to the following extent:
1. All class members who leased an apartment during defendant's receipt of J-51 tax benefits from July 1, 2003, through June 30, 2014, were entitled to a rent stabilized lease for the duration of the benefits period and were entitled to a rent stabilized lease after the expiration of the benefits as set forth in § III above.2. Defendant shall determine the amount of any overcharge in rent for all class members who were entitled to rent stabilized leases according to § IV above.3. The court dismisses defendant's first through tenth, twelfth through twenty-first, and twenty-fifth affirmative defenses and first through fourth counterclaims. C.P.L.R. §§ 3211(b), 3212(b) and (e).The court denies the remainder of plaintiffs' motion for summary judgment. C.P.L.R. § 3212(b).
DATED: November 13, 2017
_____________________________
LUCY BILLINGS, J.S.C.
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