Riccio v Windermere Owners LLC

[*1] Riccio v Windermere Owners LLC 2018 NY Slip Op 50230(U) Decided on February 21, 2018 Supreme Court, New York County St. George, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 21, 2018
Supreme Court, New York County

Christopher Riccio and KHANH TRAN, Plaintiffs,

against

Windermere Owners LLC, Defendant.



162615/15



FOR PLAINTIFFS:

Marc Bogatin, Esq.

277 Broadway, Suite 900

New York, NY 10007

FOR DEFENDANT:

Wayne L. Desimone

Cullen & Associates, P.C.

2 Rector Street, Suite 903

New York, NY 10006
Carmen Victoria St. George, J.

Plaintiffs commenced this action on December 7, 2015 by filing a summons and complaint with an ad damnum clause which seeks: 1) money damages for rent overcharge; 2) treble damages for rent overcharge; 3) a declaratory judgment that plaintiffs are rent-stabilized tenants, and are entitled to a rent-stabilized lease at a legal rent; 4) an injunction requiring Windermere to provide plaintiffs with such a lease; 5) an injunction preventing Windermere from attempting to evict plaintiffs; and 6) attorneys fees. The fundamental allegation is that Windermere committed a rent overcharge and they are entitled to a quantity of relief as a result. Windermere filed an answer with affirmative defenses on December 28, 2015. Plaintiffs' current motions are motion sequence 2, which seeks summary judgment on the issue of liability, and motion sequence 3, which seeks summary judgment on the issue of damages. The motions are consolidated for disposition and granted for the reasons, and to the extent, set forth below.

BACKGROUND

Plaintiffs Christopher Riccio and Khanh Tran (plaintiffs) are the tenants of apartment 20J in a building located at 666 West End Avenue in Manhattan (the building). Defendant Windermere Owners LLC (Windermere) is the building's owner. Plaintiffs took occupancy of apartment 20J pursuant to a lease that they executed with Windermere on August 9, 2012 (the original lease). The original lease ran from August 31, 2012 through August 31, 2013, specified a monthly rent of $3,600.00, and stated, in its preamble, that:

The parties agree that the apartment is not a 'Rent Stabilized' or 'Rent Controlled' apartment and is not subject to any form of rent regulation. As such, at all times, Owner [Windermere] is permitted to seek a fair market rental amount.

Plaintiffs and Windermere renewed the lease three times: 1) from September 1, 2013 through August 31, 2014, at a monthly rent of $3,600.00; 2) from September 1, 2014 through August 31, 2015, at a monthly rent of $3,750.00; and 3) from September 1, 2015 through August 31, 2016, at a monthly rent of $3,700.00 (the renewal leases).

At some point during the last lease renewal period, plaintiffs sought out apartment 20J's rent registration history from the New York State Department of Housing and Community Renewal (DHCR), and concluded that Windermere had improperly removed the apartment from rent- regulated status. The DHCR registration history, which plaintiffs have submitted, shows that the building's prior owner had registered apartment 20J as rent-stabilized between 1984 (with a monthly rent of $394.07) and 2010 (with a monthly rent of $1,028.06).[FN1] Apartment 20J was listed as vacant for 2011 and 2012, and permanently exempt from rent regulation in 2013 and 2014 by reason of high rent vacancy. The rent payment ledger maintained by Windermere's managing agent, nonparty Stellar Management, Inc. (Stellar), shows that plaintiffs paid their rent in full between August 14, 2012 and April 11, 2016. Plaintiffs' provide a copy of Windermere's itemization of costs of Individual Apartment Improvements [IAIs] for apartment 20J, wherein Windermere states that it expended a total of $63,021.35 in repairs and renovations on the apartment after it purchased the building. Plaintiffs argue that this documentary evidence shows that there was no lawful justification for Windermere's decision to remove apartment 20J from rent stabilized status on the basis of a high rent vacancy.

For its part, Windermere asserts that it was entitled to raise the rent enough to deregulate the apartment. Windermere denies that it has imposed a rent overcharge on plaintiffs, but also argues, in the alternative, that, should the court find such an overcharge to have occurred, it was not willful.

DISCUSSION

"[I]ssue finding, not issue resolution, is a court's proper function on a motion for summary judgment" (IDX Capital, LLC v Phoenix Partners Group LLC, 83 AD3d 569, 570 [1st Dept 2011], affd 16 NY3d 850 [2012]). As stated, plaintiffs contend that Windermere perpetrated a rent overcharge and plaintiffs are entitled to relief as a result. Rent overcharge violations, and the damages that result from them, are statutory creations (see Rent Stabilization Law [RSL] § 26-516) and thus appropriate for resolution on a summary judgment motion. More specifically, plaintiffs complaint raises issues as to whether: Windermere committed a rent overcharge (RSL § 26-516 [a]) and whether, as a result, 1) plaintiffs are entitled to money damages (RSL § 26-516 [a]); 2) plaintiffs are entitled to treble damages (RSL § 26-516 [a]); 3) plaintiffs are entitled to declaratory relief (RSL § 26-516 [a] [I]); 4) plaintiffs are entitled to injunctive relief (RSL § 26-516 [a] [5] [b]) and 5) plaintiffs are entitled to attorneys fees (RSL § 26-516 [a] [4]). As the moving parties, plaintiffs bear the burden of proving, by competent, [*2]admissible evidence, that no material and triable issues of fact exist (See e.g. Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; Sokolow, Dunaud, Mercadier & Carreras v Lacher, 299 AD2d 64, 70 [1st Dept 2002]). Once this showing has been made, the burden shifts to the party opposing the motion to produce evidentiary proof, in admissible form, sufficient to establish the existence of material issues of fact which require a trial of the action (See, e.g., Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; Pemberton v New York City Tr. Auth., 304 AD2d 340, 342 [1st Dept 2003]).

Motion Sequence Number 002

RSL § 26-516 (a) forbids the collection of "an overcharge above the rent authorized for a housing accommodation subject to this chapter." Plaintiffs argue that Windermere unlawfully removed apartment 20J from rent-stabilized status in 2013 on the basis of high rent vacancy deregulation. Plaintiffs note that to qualify for high rent vacancy deregulation, a rent-stabilized apartment must have a lawful regulated rent of at least $2,500.00. The last lawful regulated rent, in 2010, was $1,028.06 per month. Plaintiffs do not dispute that landlords can increase the rent of a vacant apartment's lawful regulated rent for reasons including vacancy increases, yearly guidelines increases, and individual apartment improvement increases (IAIs). They argue, however, that Windermere was not entitled to the two of these types of increases because the building is classified as hotel-stabilized and the Rent Stabilization Code (RSC) does not authorize these increases for apartments in hotel-stabilized buildings. Plaintiffs also argue that Windermere's expenditures were not enough to raise the apartment 20J's lawful regulated rent above the deregulation threshold of $2,500.00 per month.

With respect to hotel stabilization, plaintiffs first cite RSC § 2521.3, which sets forth the criteria that the DHCR uses when determining whether to classify a building as a "hotel," and which further provides that only those buildings that are later reclassified as no longer being hotels will be thereafter "subject to the provisions of this Code applicable to apartment buildings, at the legal regulated rent for each housing accommodation as determined by the order of the DHCR, plus lawful increases and adjustments allowed pursuant to this Code."

Plaintiffs present a portion of the October 17, 2012 deposition testimony of Stellar's property manager, Murray Baigelman (Baigelman), that was taken in another action involving the building, wherein he admitted that the building was a Class A hotel and subject to hotel stabilization. In addition, they annex copies of two unpublished decisions, Matter of Windermere v DHCR (2007 NY Misc LEXIS 9292, Index No. 100230/2007 [Sup Ct NY County 2007] [Wilkins, J.]) and Tanzillo v Windermere Owners LLC (2015 NY Misc LEXIS 714, 2015 NY Slip Op 30818 [U] [Sup Ct NY County 2015] [Coin, J.]), both of which found that the building located at 666 West End Avenue is a hotel and is subject to hotel stabilization. Given the building's lawful classification as a hotel, plaintiffs argue, both RSC § 2521.3 and the Rent Guidelines Board's (RGB's) Hotel Orders prevent Windermere from augmenting apartment 20J's rent with either vacancy increases or yearly guidelines increases.

In Justice Coin's decision in Tanzillo, the court ruled in favor of the tenant of another apartment in the building, and disallowed both of these types of rent increases for his apartment. In its opposition papers, Windermere acknowledges that "the court previously denied [Windermere's] entitlement to a vacancy allowance" in another, unspecified action, but asserts that it has "filed a notice of appeal and plans to pursue said appeal" in that action (See Motion [*3]Seq. 2, Cullen Aff. in Opp., ¶ 7). Windermere's position lacks merit. The argument concedes that yet another decision comports with the rulings on which plaintiffs rely. Also, Windermere neither identifies the case nor provides a copy of the order to which Windermere refers. Moreover, Justice Coin's ruling in Tanzillo, while not controlling, is persuasive, especially as the case appears to be virtually identical to the one at hand.

In addition, Windermere has not rebutted plaintiffs' prima facie case, which establishes that the building is a hotel. Under RSC § 2521.3, the onus is squarely on Windermere to apply to the DHCR to reclassify the building either as a hotel or as an apartment building. Windermere has offered no evidence that it submitted any such applications to the DHCR. As a result, Windermere improperly applied vacancy increases to the hotel's apartments.

Plaintiffs argue that apartments in buildings classified as hotels, yearly guidelines increases in apartment rents may only be assessed pursuant to an RGB hotel order. The RGB hotel order in effect through 2015, which plaintiffs have submitted, permitted landlords to assess a 3% yearly guidelines increase to the rent of apartments in hotel buildings, but also provided that there could be no increases when fewer than 85% of the units in a hotel are permanent rent-stabilized tenants. Plaintiffs also submit a copy of the building's 2009 rent roll, which shows that the building has a total of 403 units, of which 229 were rent-regulated. As plaintiffs note, this constitutes 56.8% of the building's total units. Accordingly, it was improper for Windermere to increase the apartments' rents by 3% (See Matter of 1234 Broadway LLC v Division of Housing & Community Renewal, 41 Misc 3d 593, 594 [Sup Ct NY County 2013] [citing Hotel Order No. 38]). Windermere does not oppose this argument in its papers. As a result, and based on the operative RBG hotel order, the court concludes that Windermere cannot assess yearly guidelines increases to the plaintiffs' rent.

Finally, plaintiffs argue that even if Windermere made all the improvements it alleges, it would not be sufficient to raise apartment 20J's lawful regulated rent above the deregulation threshold of $2,500.00 per month. Plaintiffs cite RSL § 26-511 (c) (13), which states:

[A landlord] is entitled to a rent increase where there has been a substantial modification or increase of dwelling space or an increase in the services, or installation of new equipment or improvements . . . provided in or to a tenant's housing accommodation . . . . The permanent increase . . .for the affected [unit] shall be . . . one-sixtieth. . . of the total cost incurred by the landlord in providing such modification or increase in dwelling space, services, furniture, furnishings or equipment, including the cost of installation, but excluding finance charges. . . .

According to plaintiffs, a correct application of this rule in the case of their apartment would result in an IAI increase too small to justify deregulation. They note that Windermere's supplemental response to their notice for discovery and inspection included an unsupported estimate that it spent a total of $63,021.35 in IAI-related work on apartment 20J. One-sixtieth of this amount is $1,050.35. When added to apartment 20J's last legally registered monthly rent of $1,028.06, this would yield a monthly rent — $2,078.41 — that is below the deregulation threshold of $2,500.00 (See RSC § 2520.11 [r] [5]).

In opposition, Windermere again refers to its intention to appeal an earlier, unspecified court decision that denied Windermere the right to include "vacancy increase" amounts when calculating the lawful regulated monthly rents of the building's apartments (which Windermere [*4]estimates would be $169.63, in the case of apartment 20J). Windermere also contends that "the lawful rent remains a question of fact," because plaintiffs have argued that "in the damages phase of this case, [they] will contest [Windermere's] IAI expenditures of $63,021.35," and it asserts that "to date" it has proven expenditures of $63,021.35 (Motion Seq. 2, Cullen Aff. in Opp., ¶¶ 8, 10). The fact that Windermere might appeal an adverse order lacks merit. Further, Windermere's assertion that it has proven $63,021.35 its IAI expenditures to date is self serving and lacks evidentiary support. As plaintiffs note, Windermere has not provided contracts, cancelled checks, paid bills, invoices, receipts, or other pertinent documents. Thus, Windermere's assertions that it has proven these expenditures to date and its insinuation that it might prove a greater amount at some later date lack probative value (See, e.g., Ramnarine v Memorial Ctr. for Cancer & Allied Diseases, 281 AD2d 218, 219 [1st Dept 2001]). Regardless, as noted, Windermere's estimated figure of $63,021.35 in IAI expenditures would not allow it to raise apartment 20J's rent above the deregulation threshold.

For all the reasons above, the documentary evidence demonstrates that the last lawful registered rent for apartment 20J was $1,028.06 per month, that the building is a hotel as defined by the RSC, that the RSC precludes Windermere from assessing vacancy or yearly guidelines increases to apartment 20J; that Windermere expended a maximum of $63,021.35 in IAI related repair and/or renovation costs to apartment 20J; that under the RSC Windermere may augment apartment 20J's lawful regulated rent by one-sixtieth of these costs, or $1,050.35, but that this increase does not allow for deregulation under RSL § 2520.11 (r) (5). As a result, Windermere illegally deregulated apartment 20J and it has been overcharging plaintiffs since the inception of their tenancy in 2012. Accordingly, the court grants motion sequence number 002 to the extent of finding Windermere liable for rent overcharge pursuant to RSC § 26-516 (a).

Motion Sequence Number 003

Plaintiffs' second motion asserts that only "a simple mathematical calculation" is necessary to establish overcharge damages of $106,949.54 "before trebling" (Motion Sequence 3, Bogatin Aff, ¶¶ 27-52). The motion, on the other hand, requests an order

"(a) fixing the lawful rent at $1028.06, (b) determining plaintiffs' damages, including treble damages, to be $243,690.42, and (c) directing a hearing to set plaintiffs' legal fees due from defendant."

(Id., ¶ 74). As these numbers diverge from those in plaintiffs' prayer for relief, this action cannot be resolved by a simple calculation. Instead, the Court must determine the extent of the declaratory relief that plaintiffs are entitled to under RSL § 26-516 (a).

Declaratory judgment is a discretionary remedy that may be granted "as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed" (CPLR 3001; see Jenkins v State of New York Division of Hous. & Community Renewal, 264 AD2d 681 [1st Dept 1999]). Moreover, the court may determine the respective rights of all of the affected parties under a lease (See Leibowitz v Bickford's Lunch Sys., 241 NY 489 [1926]; cf. Wilen v Harridge House Associates, 94 AD2d 123 [1st Dept 1983]; see also H.R. Neumann Assoc. v New Eagle, Inc., 2005 WL 433398, 2005 NY Slip Op 50217 [U], *5 [noting that Supreme rather than Civil Court possessed the necessary equitable powers to preside over an application for a Yellowstone injunction]). As Windermere committed a rent overcharge in violation of RSL § 26-516 (a), plaintiffs are entitled to a declaration to this effect.

Plaintiffs also seek treble damages. Under RSL § 26-516 (a), a building owner who collects an overcharge "shall be liable to the tenant for a penalty equal to three times the amount of such overcharge," unless "the owner establishes by a preponderance of the evidence that the overcharge was not willful." From this, it follows that plaintiffs are entitled to a declaration that Windermere is liable to them for money damages in the amount of the overcharge, and that these damages shall be trebled unless, at a hearing, Windermere establishes that its overcharge was not willful. Thus, plaintiffs are entitled to a declaration that Windermere is conditionally liable to them for treble damages. Finally, RSL § 26-516 (a) (4) provides that "[a]n owner found to have overcharged may be assessed the reasonable costs and attorney's fees." Based on the facts at hand, plaintiffs are entitled to a declaration that Windermere is liable to them for costs and attorney's fees. Accordingly, plaintiffs' second motion is granted to the extent of awarding them a declaratory judgment that sets forth the above four findings.

The calculations that are appurtenant to these declarations cannot be resolved on the papers, however. The Court has determined that the lawful regulated rent for apartment 20J cannot exceed $2,078.41 per month but that it might be lower. Plaintiffs took occupancy of apartment 20J in August 2012, and commenced this action in December 2015. Thus, the entire overcharge took place within the permissible four-year limitations period for determining the amount of overcharge that a tenant normally can recover (9 NYCRR § 2526.1 [a] [2]). Although, as stated, plaintiffs have established that they paid all the rent that was due between August 2012 and April 2016. Windermere counters that plaintiffs did not pay rent between March and December 2016, and annexes a copy of Stellar's rent ledger for that period to substantiate its claim. Windermere asserts that it is entitled to a setoff of any overcharge claim in the amount of unpaid rent. There is no evidence before the Court which shows how much rent, if any, plaintiffs have paid during the past year. The court commits the issue of calculating the rent overcharge and any set-off amount to a Special Referee to hear and report.

Plaintiffs also seek treble damages based on Windermere's alleged willfulness. Under the RSL, there is a presumption that all rent overcharges are willful and subject to treble damages unless "the owner establishes by a preponderance of the evidence that the overcharge was not willful" (RSL § 26-516 [a] [emphasis added]). Windermere argues that it has "rebutted the presumption of wilfulness or at least raised a question of fact" by demonstrating that the instant overcharge was caused by "a hyper technical rent calculation error . . . attributable to [its] inclusion of a statutory vacancy allowance of 16.5%." (See Motion Seq. 3, Cullen Aff. in Opp., ¶¶ 26-38). As stated, however, the building is subject to hotel stabilization, which forbids the imposition of vacancy increases. Deposition testimony demonstrated that Windermere is well aware of the building's status. Moreover, in numerous earlier litigations New York courts have ruled against Windermere on this very issue. In light of these facts, Windermere's argument that its overcharge was inadvertent is not credible. It appears, instead, that Windermere assessed a vacancy increase that it knew, or should have known, it was not entitled to. As a result, the court finds that Windermere has not rebutted the presumption of wilfulness, and directs that the Special Referee include calculations for both a proposed rent overcharge amount and a proposed treble damages amount in his or her report.

Finally, with respect to legal fees, RSL § 26-516 (a) (4) provides that:

"An owner found to have overcharged may be assessed the reasonable costs and [*5]attorney's fees of the proceeding and interest from the date of the overcharge at the rate of interest payable on a judgment pursuant to section five thousand four of the civil practice law and rules."

Here, as Windermere overcharged plaintiffs, they are entitled to seek reimbursement for their legal fees. Windermere objects that plaintiffs waived their right to seek legal fees because they responded inadequately to its discovery demand for documentation supporting their claim. In reply, plaintiffs state that in response to the discovery request they indicated that they would produce the requested documentation if they prevailed in this action and pursued legal fees.

Under these circumstances, plaintiffs did not waive their rights under RSL § 26-516 (a) (4). Moreover, the Special Referee shall determine this issue as well. Plaintiffs must provide the discovery to Windermere at least 30 days before the hearing date. They may present evidence of their expenditures at the hearing, who is directed to review them, along with Windermere's objections, and to include a proposed legal fee award calculation in his orher report. After the court disposes of plaintiffs' eventual motion to confirm the report, and enters a final money judgment, the Clerk's Office shall add statutory interest.

Finally, under RSL § 26-516 (a) (5) (b), DHCR is empowered to "enforce this law and the code by issuing . . . such other orders as it may deem appropriate." Similarly, the court has plenary authority to award provisional equitable remedies such as preliminary injunctions (CPLR § 6301). Plaintiffs' first motion makes the request for an order declaring that plaintiffs are entitled to a rent-stabilized lease due to Windermere's unlawful rent overcharge. The Court's earlier finding of overcharge entitles plaintiffs to an order that Windermere must stop the overcharge, must issue plaintiffs a rent-stabilized lease that reflects the current lawful regulated rent, and must register apartment 20J with the DHCR as a rent-stabilized unit with that rent. The Court therefore directs plaintiffs to include a request for such an order in their eventual motion to confirm the Special Referee's report, together with legal and factual support.

DECISION

Accordingly, for the foregoing reasons, it is hereby

ORDERED that the motion sequence number 002 is granted solely to the extent that so much of plaintiffs' motion as seeks a declaratory judgment with respect to the subject matter of plaintiffs' cause of action for rent overcharge is granted with costs and disbursements to plaintiffs as taxed by the Clerk; and it is further

ADJUDGED and DECLARED that defendant Windermere Owners LLC overcharged plaintiffs' rent for apartment 20J in the building located at 666 West End Avenue in the County, City and State of New York between the period of August 2012 through the present date in violation of RSL § 26-516 (a), and that said defendant is therefore liable to plaintiffs for the full amount of the rent overcharge, for treble damages and for reasonable legal fees, less any appropriate setoff; and it is further

ORDERED that the motion, pursuant to CPLR 3212, of plaintiffs Christopher Riccio and Khanh Tran (motion sequence number 003) is granted solely to the extent that the issues of:

1) the calculation of the total amount of the rent overcharge that was collected by the defendant from the plaintiffs during the above-mentioned time period, and the calculation of the current amount of rent that is now due from the plaintiffs to the defendant (if any); and2) the calculation of treble damages for said total rent overcharge; and3) the calculation of legal fees expended by plaintiffs to date;

are referred to a Special Referee to hear and report with recommendations, or hear and determine, if the parties so stipulate pursuant to CPLR § 4317, the amount due in arrears, costs, disbursements and legal fees and the proper equitable relief; and it is further

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

Dated: February 21, 2018

ENTER:

______________________________________

Hon. Carmen Victoria St. George, J.S.C. Footnotes

Footnote 1:Plaintiffs also present a 2011 rent roll report that Windermere submitted to the DHCR, which indicates that, as of 2009, apartment 20J was a rent-stabilized unit with a legal registered rent of $1028.06 per month.