699 Venture Corp. v. Zuniga

• Decision Date: 24 September 2020
• Docket Number: 19533/2019
• Citation: 699 Venture Corp. v. Zuniga, 69 Misc.3d 863, 133 N.Y.S.3d 191 (N.Y. Civ. Ct. 2020)
• Parties: 699 VENTURE CORP., Petitioner, v. Domitila ZUNIGA, Respondent.
• Court: New York Civil Court

69 Misc.3d 863

133 N.Y.S.3d 191

699 VENTURE CORP., Petitioner,

v.Domitila ZUNIGA, Respondent.

19533/2019

Civil Court, City of New York.

Decided on September 24, 2020

Lazarus, Karp & Kalamotousakis, LLP, for Petitioner

The Legal Aid Society, for Respondent

Karen May Bacdayan, J.

The decision and order on this motion is as follows:

BACKGROUND AND APPLICABLE LAW

In this nonpayment proceeding, Petitioner seeks renewal and modification of the court's prior decision and order which granted Respondent, Domitila Zuniga, a rent stabilized tenant, leave to conduct discovery dating back to 1996 in support of rent overcharge counterclaim. Petitioner argues that Respondent did not "did not raise with sufficiency a fraud in order to be allowed examination of the rent records beyond the four years permitted by the statute of limitation[s] for overcharge complaints in effect prior to the enactment of [the Housing Stability and Tenant Protection Act of 2019 ("HSTPA") ]." (Affirmation of Petitioner's counsel at 23.)

The decision was issued on July 1, 2019, shortly after the passage of the HSTPA on June 14, 2019. As the court then observed, Part F of the HSTPA enacted sweeping changes to the provisions of law regarding examination of the rental history and determination of rent overcharges and legal regulated rents. Instead of the prior four-year limitation on review of records, the new law mandated that "the courts, in investigating complaints of overcharge and in determining legal regulated rents, shall consider all available rent history which is reasonably necessary to make such determinations , including but not limited to any rent registration or other records filed with the state division of housing and community renewal...." (Rent Stabilization Law of 1969 [Administrative Code of the City of NY] § 26-516 [h], as added by L 2019, ch 36, § 1, part F, § 5 [emphasis added] [internal numeration omitted].) It provided further:

"Nothing contained in this subdivision shall limit the examination of rent history relevant to a determination as to ... whether the legality of a rental amount charged or registered is reliable in light of all available evidence including but not limited to whether an unexplained increase in the registered or lease rents ... rendered such rent or registration unreliable." (Id. )

In effect, the HSTPA also redefined the "base date" rent from which an overcharge is calculated by amending provisions of the Rent Stabilization Law to provide that "the legal regulated rent for purposes of determining an overcharge, shall be the rent indicated in the most recent reliable annual registration statement filed and served upon the tenant six or more years prior to the most recent registration statement...." (Administrative Code § 26-516 [a], as amended by L 2019, ch 36, § 1, part F, § 4 [emphasis added]; see generally Rent Stabilization Code [9 NYCRR] § 2520.6 [f].)¹ The last of the amendments that are relevant here were made to CPLR 213-a and provided that, although overcharge damages could only be awarded for the six-year period preceding interposition of the claim, "an overcharge claim may be filed at any time, and the calculation and determination of the legal rent and the amount of the overcharge shall be made in accordance with the provisions of law governing the determination and calculation of overcharges." (L 2019, ch 36, part F, § 6.)

The language of the HSTPA gave these amendments immediate effect and provided they be applied to pending claims, as well as to future ones. (L 2019, ch 36, part F, § 7.) Shortly after its passage, the Appellate Division upheld the application of these provisions to pending claims, finding "no merit to [the landlord's] claim that applying the amendments to RSL § 26-516 and CPLR 213-a to this pending litigation violate[d] due process." ( Dugan v. London Terrace Gardens, L.P. , 177 A.D.3d 1, 10 [110 N.Y.S.3d 3] [1st Dept. 2019], recalled and vacated 186 A.D.3d 12 [186 A.D.3d 12, 128 N.Y.S.3d 497], 2020 N.Y. Slip Op. 04239 [2020].) Numerous courts, including this one, followed the Dugan Court's pronouncement.

In this court's opinion, now under review, application of Part F of the HSTPA mandated a transformed analysis of what was discoverable in the context of overcharge claims and abrogated much of the appellate authority that evolved around the prior law. It eliminated any requirement that significant indicia of fraud be established to warrant examination of the rent history beyond the statute of limitations (see Matter of Grimm v. State of New York State Div. of Hous. & Community Renewal [15 N.Y.3d 358, 912 N.Y.S.2d 491, 938 N.E.2d 924] [2010] ; Thornton v. Baron , 5 N.Y.3d 175 [800 N.Y.S.2d 118, 833 N.E.2d 261] [2005] ), and rendered obsolete the precept that a significant increase in rent was alone insufficient to allow for such an examination. (See Matter of Boyd v. New York State Div. of Hous. & Community Renewal , 23 N.Y.3d 999, [992 N.Y.S.2d 764, 16 N.E.3d 1243] [2014].) Instead it charged courts to search the entire rent history, "regardless of the date to which the information on such registration refers," for the "most recent reliable annual registration statement filed and served upon the tenant six or more years prior to the most recent registration statement." (Administrative Code § 26-516 [a], [h].)

Accordingly, the court granted Respondent's request for disclosure of documents and other information dating back to 1996, having found that to be the year of the most recent reliable registration statement.²

However, on April 2, 2020, the Court of Appeals issued its decision in Regina Metropolitan which parsed the constitutionality of the retroactive application of Part F to pending overcharge claims and found such application to violate "fundamental notions of substantial justice embodied in the Due Process Clause." ( Matter of Regina Metropolitan Co., LLC v. New York State Div. of Hous. and Community Renewal , 35 N.Y.3d 332 [130 N.Y.S.3d 759, 154 N.E.3d 972], 2020 N.Y. Slip Op. 02127 [2020 WL 1557900] [2020].) In so finding, the Court held that "the overcharge calculation amendments cannot be applied retroactively to overcharges that occurred prior to their enactment ." ( Regina Metropolitan , [35 N.Y.3d at 363, 130 N.Y.S.3d 759, 154 N.E.3d 972], 2020 N.Y. Slip Op. 02127, *9 [emphasis added].)

As is relevant to the Petitioner, the Regina Court espoused that owners who reasonably relied on the record retention provision permitting owners to dispose of records outside of a four-year period may be subject to overcharge damages under the HSTPA "for purported historical overcharges that were once supported by documentation." ( Id. at [379, 130 N.Y.S.3d 759, 154 N.E.3d 972, 2020 N.Y. Slip Op. 02127, at] *16.) The Court voiced its opinion that retroactive application of the HSTPA provisions which eliminate the prior record retention limitations exacerbates the retroactive effect of Part F by upending an owner's expectation of repose derived from the pre-HSTPA law. (See id. at [423, n. 20, 130 N.Y.S.3d 759, 154 N.E.3d 972, 2020 N.Y. Slip Op. 02127, at] *12, n. 20.)

Regina Metropolitan quashed the prior interpretation of Part F of the HSTPA allowing for review of the rental history outside of the statute of limitations with the sole exception of instances where a fraudulent scheme to remove an apartment from rent regulation is demonstrated. ( Id. at [ 130 N.Y.S.3d 759, 154 N.E.3d 972, 2020 N.Y. Slip Op. 02127, at] *5.) In such cases, the Court recognized within its precedent "a limited common-law exception to the otherwise-categorical evidentiary bar, permitting tenants to use such evidence only to prove that the owner engaged in a fraudulent scheme to deregulate the apartment." ( Id. at [354, 130 N.Y.S.3d 759, 154 N.E.3d 972, 2020 N.Y. Slip Op. 02127, at] *5.) The Regina Court resurrected and defined the pre-HSTPA law:

"The rule that emerges from our precedent is that, under the prior law, review of rental history outside the four-year lookback period was permitted only in the limited category of cases where the tenant produced evidence of a fraudulent scheme to deregulate and, even then, solely to ascertain whether fraud occurred — not to furnish evidence for calculation of the base date rent or permit recovery for years of overcharges barred by the statute of limitations. In fraud cases, this Court sanctioned use of the default formula to set the base date rent." ( Id. at [355, 130 N.Y.S.3d 759, 154 N.E.3d 972, 2020 N.Y. Slip Op. 02127, at] *5.)

In pronouncing Part F of the HSTPA to be unconstitutional as retroactively applied and reviving the relevant pre-HSTPA law, the Court of Appeals noted that:

"[N]othing in the [pre-HSTPA] rent stabilization scheme suggested that where an unrecoverable overcharge occurred before the base date, thus resulting in a higher base date rent, the four-year lookback rule operated differently. To the contrary, the limitations provisions — in order to promote repose — precluded consideration of overcharges prior to the recovery period, and it is clear from Boyd that use of a potentially inflated base date rent, flowing from an overcharge predating the limitations and lookback period, was proper in the absence of fraud." (Id. at *6.)

When previously granting Respondent's request to conduct discovery from 1996 to the present, this court did not analyze Respondent's allegations of fraud. Rather, under the HSTPA, ample need for disclosure was demonstrated by an unreliable rent registration in 1997 which rendered the 1996 rent registration — the most recent reliable rent registration — the base date pursuant to the HSTPA. However, because Respondent seeks disclosure of documentation that falls outside the resurrected four-year statute of limitations, the court must now assess whether Respondent has asserted facts to establish a "fraudulent scheme to deregulate the apartment" warranting discovery apropos her claim of overcharge prior to the base date. (Se...