Dugan v London Terrace Gardens, L.P.

[*1] Dugan v London Terrace Gardens, L.P. 2018 NY Slip Op 51412(U) Decided on September 26, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 September 26, 2018
Supreme Court, New York County

William Dugan, Masha D'Yans, Georgette Gagnon, Lowell D. Kern, Michael McCurdy, Jose Pelaez, Tracy Synder, Michael J. Walsh, Leslie M. Mack, Anita Zitis and James Doerr, On Behalf of Themselves and All Others Similarly Situated, Plaintiff,

against

London Terrace Gardens, L.P., Defendant.



603468/2009



Borah, Goldstein, Altschuler, Nahins & Goidel, P.C.

(for London Terrace Gardens, L.P., defendant)

377 Broadway, 6th Floor

New York, NY 10013

Vernon & Ginsburg, LLP

(for plaintiffs Blech and Chassman)

261 Madison Avenue

New York, NY 10016
Carmen Victoria St. George, J.

This is the seventeenth motion in this nine-year-old lawsuit. The prior orders of the Supreme Court and First Department have laid out the underlying facts and legal principles in detail. The Court incorporates those recitations by reference and, below, sets forth only the information necessary for the resolution of this motion.

London Terrace Gardens (London Terrace) began receiving J-51 tax benefits on July 1, 2003. The benefits ended on June 30, 2014. Because of these benefits, and for reasons explained in prior decisions, all rental apartments in the building were deemed rent-stabilized throughout this period. In 2009, William Dugan and others brought this lawsuit, a proposed class action against London Terrace, alleging that defendant had not treated the apartments as rent-stabilized units exempt from luxury decontrol while the building received J-51 tax benefits and therefore had overcharged their rent. Justice Lucy Billings, who then presided over this lawsuit, granted class certification and consolidated the action with another lawsuit for the same relief, which also had been brought as a proposed class action. Justice Billings' defined the class as

all past and current tenants of London Terrace Gardens who have been charged or [*2]continue to be charged deregulated rents during defendant's receipt of J-51 tax benefits under New York Real Property Tax Law § 489 (1) (a) and New York City Administrative Code §§ 11-243 and 11-244 (Dugan v London Terrace Gardens, L.P., Sup Ct NY County, Billings, J., Index No. 603468/2009 [August 16, 2013] [Dugan 3]).[FN1]

Since 2005, tenants David Blech and Margie Chassman have been the tenants of 16AB and 16EF. A few years after Justice Billings certified the class in the New York State Supreme Court, London Terrace commenced a nonpayment proceeding in Housing Court against David Blech and Margie Chassman, who rented apartments 16AB and 16EF (London Terrace Gardens, L.P. v Blech [L & T Index No. 059254/2015]). Apartments 16E and 16F had been combined into one unit, as had apartments 16A and 16B. All four apartments subsequently were combined into one unit, 16ABEF. The tenants' answer to the Housing Court proceeding alleged as affirmative defenses and counterclaims that 1) London Terrace improperly treated the apartment as non-rent-stabilized from the commencement of their tenancy, in 2005, onward, and the landlord also did not reduce their rent when it discontinued their access to the complex' swimming pool [FN2] , and thus owed the tenant rent abatement and treble damages; 2) the landlord increased the rent illegally during their tenancy and filed false rent registrations; 3) the landlord breached the warranty of habitability; and 4) pursuant to the lease, the landlord owed defendant legal fees for commencing the eviction proceeding.

In 2016, Justice Billings granted London Terrace's motion to remove the Blech/Chassman proceeding from Housing Court and consolidate it with this class action (see Dugan v London Terrace Gardens, Index No. 603468/2008, Billings, J. [2016] [Dugan 8]). The Court stated there was a significant interest in avoiding conflicting judgments about the means of computing the rent for the apartments in the building. Although in the Housing Court proceeding David Blech and Margie Chassman sought treble damages and the class action only sought compensatory damages, the judge ruled, this was not prejudicial because Blech and Chassman could opt out of the class.

On November 13, 2017, Justice Billings issued a decision which established a formula for computing the rent overcharges and the rent due for each apartment in the class. As is relevant here, the decision addressed the leases of tenants who rent apartments which were subject to rent stabilization before London Terrace began receiving J-51 tax benefits. The court concluded that these tenants were "entitled to a rent stabilized lease continuing after [the J-51's] expiration until [London Terrace] lawfully deregulated the apartment under the [Rent Stabilization Code (RSC)]" (Dugan v London Terrace Gardens, L.P., 2017 NY Misc LEXIS 5391, *7, 2017 NY Slip Op 51998 [U], **4 [Sup Ct NY County 2017] [Dugan 6]). The order pointed out that because the apartments already were rent-stabilized and would continue to be stabilized until London Terrace could deregulate them lawfully through luxury deregulation, London Terrace had no obligation to notify these tenants when the J-51 benefits expired (see id.). The decision noted, however, that any tenants in this group "who entered a lease for such an apartment after the J-51 benefits period still is entitled to a rent stabilized lease unless defendant [*3]shows that it lawfully deregulated the apartment after expiration of the benefits" (id.).

In addition, the court stated the overcharges would be calculated using the legal regulated rent, which is "the rent charged on the base date plus any subsequent lawful increases" (id.). The base date, in turn, is "the most recent of (1) the date four years before the overcharge complaint or (2) the date when the apartment became rent regulated" (id. at 7-8, 2017 NY Slip Op 51998 [U] at **5). The legal regulated rent must be the amount it would have been legal to charge on the base date (id. at 8, 2017 NY Slip Op 51998 [U] at **5). Further, "no determination . . . of any overcharge may be based on an overcharge more than four years before commencement of the overcharge action" unless the tenant shows that "the defendant engaged in fraud in setting the rent on the base date or in removing the apartment from rent regulation" (id.). In the class action, the court noted, there was no allegation of fraud (id.). The court concluded that, for apartments that were rent-stabilized prior to the receipt of J-5 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" (id.). The base date for previously-stabilized apartments was November 13, 2005, and for the previously-non-stabilized apartments was July 1, 2003.

In Dugan v London Terrace Gardens, (Index No. 603468/2008, Billings, J. [2017] [Dugan 10]), defendant moved for past due rent against Blech and Chassman as well as ongoing use and occupancy payments for their apartments. The court held that London Terrace had the right to collect payments from these tenants "during the pendency of this action." Justice Billings rejected defendant's argument that the combination of apartments 16AB and 16EF created a "new" apartment so that it had been entitled to charge a new, and higher, rent. The judge determined that defendant had not submitted sufficient evidence to establish this, but that defendant could renew its application with sufficient proof but, as stated earlier, the court rejected London Terrace's argument that it was entitled to charge a market rent based on its "new" apartment argument. The court therefore directed that defendant "must calculate the payments for use and occupancy of apartments 16AB and 16EF separately," using the computation she set forth in Dugan 6. The decision granted the cross-motion, which sought to determine the rent overcharge, "to the same extent as the court granted the plaintiff class' motion for partial summary judgment" in Dugan 6. Both Dugan 6 and Dugan 10 have been appealed, with the litigants currently scheduled to submit their papers in January 2019. The orders, however, have not been stayed.

In the current motion and cross-motion, defendant seeks (1) judgment of possession for the premises in dispute and back rent; (2) provisional relief in additional rent if defendant ultimately satisfies its burden of proof on one additional issue; (3) possession of the premises; and (4) use and occupancy of $15,198.44 per month during the pendency of this motion. Defendant seeks a hearing, if necessary, to determine the base rent. It alleges that not only have Blech and Chassman failed to pay rent since the order in Dugan 10, but they have not paid any rent since October 2014. The papers continue to argue that when the apartments were combined a "new" apartment was created, and the computation therefore operates on the assumption that it was appropriate to lease the units to Blech and Chassman at an initial rent of $12,800. London Terrace states that, if the rent increases are calculated as mandated by the rent stabilization laws, [*4]Blech and Chassman owe back rent of $479,598.75.[FN3]

Blech and Chassman oppose the motion and cross-move for a money judgment against London Terrace in the amount of $2,772,932.88 along with legal fees and interest. They point out that Justice Billings rejected defendants' argument that Units 16AB and 16EF should be treated as one combined unit, and therefore the premise of defendant's calculation is flawed. Instead, pursuant to Justice Billings' decision in Dugan 10. They claim that, using the rents that should have been charged, the proper combined rents for apartments 16AB and 16EF should be $5,738.70. In so arguing, Blech and Chassman are relying on the last registered rent-stabilized rents for apartment 16A of $1,469.69, apartment 16B of $1,869.06, for a total of $3,338.75; and that based on the last rent-stabilized lease for apartment 16EF, the rent should be $2,400.01. The total rent for the combined units, therefore, should be $5,738.76. Blech and Chassman also added the annual increases which would have been allowable under the rent stabilization law, and they calculated that they had been overcharged $986,991.13. In addition, they seek treble damages because London Terrace has not established that it did not overcharge them wilfully. That brings London Terrace's alleged debt to $2,960,973.39. Blech and Chassman concede that, as of May 16, 2018, when they submitted their cross-motion, they had not paid rent for twenty-four months. Using the amount that they claim they owe under Owens 10, they state that they owe London Terrace $188,040.51. Deducting this from the purported amount due to them, they state they are owed $2,772,932.88.

Finally, the Court notes that there is conflicting case law in this Department concerning the proper method to determine the legal base rent. Cases such as Taylor v 72A Realty Assoc., L.P. (151 AD3d 95 [1st Dept 2017]) and 72A Realty Assoc. v Lucas (101 AD3d 401 [1st Dept 2012]) suggest that, in a situation such as the one at hand, it is appropriate to look beyond the four-year period to determine the base rent where, as here, there are no stabilized leases and rent registrations available for the four-year period. More recently, in a 3-2 decision, the First Department rejected its own precedent and found that absent evidence of fraud, it is improper to consider rents charged prior to the four-year limitations period to determine the base rent (Matter of Regina Metro. Co., LLC v New York State Division of Housing & Community Renewal, 2018 NY App Div LEXIS 5752, 2018 NY Slip Op 05797 [1st Dept 2018] [Regina]). The Court also notes that, as Justice Billings indicated in her rulings, Blech and Chassman cannot seek treble damages in the context of this class action litigation.

For all the reasons above, and after consideration of all papers submitted in connection with this motion, the Court determines that it is premature to make a final determination about the rent, back rent, and overcharge issues at this time. Any determination would be inappropriate in light of the fact that appeals are pending in two critical issues in this motion. The Court does note that defendant's proposed method of computation conflicts with Justice Billings' conclusion that defendant has yet to establish that combining the two apartments created a "new" apartment and that the base rent should be that in the last stabilized lease. In addition, Blech and Chassman's proposed judgment includes treble damages — which, as defendant notes, are not [*5]available in this class action — and also conflicts with the First Department's ruling in Regina (which, in turn, is inconsistent with the First Department's prior precedent).

Despite this, and consistent with Justice Billings' orders in Dugan 10 and Dugan 13, the latter of which determined the proper back rent and monthly rent due to London Terrace for other apartments in the class action, Blech and Chassman. The Court notes that, by stipulation, the parties previously agreed that for four months Blech and Chassman would pay a monthly use and occupancy of $12,000 from April 2018 through July 2018. When the Court attempted to mediate the issue of use and occupancy, Blech and Chassman did not agree to extend the stipulation. The Court determines that this is a reasonable rent — subject, of course, to its return if defendant ultimately owes Blech and Chassman back rent and damages. Accordingly, it is

ORDERED that the motion is granted to the limited extent that Blech and Chassman shall pay London Terrace $12,000, retroactive to September 1, 2018; and it is further

ORDERED that the remainder of the motion, and the cross-motion, are denied.

Dated: September 26, 2018

CARMEN VICTORIA ST. GEORGE, J.S.C. Footnotes

Footnote 1:The number 10 in Dugan 10 refers to the motion sequence number. Due to the number of motions, the Court shall identify all motions by their sequence numbers.

Footnote 2:This relates to First Department and DHCR determinations in another lawsuit which was over the building's decision to discontinue the tenants' rights to access London Terrace's swimming pool.

Footnote 3:London Terrace alleges it is unclear whether the Court of Appeals decision in Roberts v Tishman Speyer Properties, L.P. (13 NY3d 270 [2009]) is retroactive, and they offer an alternate computation of $753,207.28 in back rent due. The Court rejects this argument as inconsistent with the law in this Department (Taylor v 72A Realty Assoc., L.P., 151 AD3d 95 [1st Dept 2017].