Baxter v. Captain Crow Management, Inc.

• Decision Date: 08 April 1985
• Citation: 128 Misc.2d 254,487 N.Y.S.2d 997
• Parties: Charles BAXTER, David Forman, Stephen White, Kerhn White, Michael Barrow, Madeline Todd, Jame Freeman and Jim Moore, Plaintiffs, v. CAPTAIN CROW MANAGEMENT, INC., Howard Rower and West Chamson Corp., Defendants.
• Court: New York Supreme Court

Page 997

487 N.Y.S.2d 997

128 Misc.2d 254

Charles BAXTER, David Forman, Stephen White, Kerhn White Michael Barrow, Madeline Todd, Jame Freeman and Jim Moore, Plaintiffs, v. CAPTAIN CROW MANAGEMENT, INC., Howard Rower and West Chamson Corp., Defendants.

Supreme Court, Special Term New York County, Part 1.

April 8, 1985.

Stults & Marshall, New York City (Jo Ann Cahn, New York City, of counsel), for plaintiffs.

Liddle & Associates, New York City (Jeffrey L. Liddle, David D. Howe, New York City, of counsel), for defendants.

DAVID B. SAXE, Judge.

The twentieth century may well be remembered as an era in which legislatures at all levels of government attempted to substitute regulations of their own making for the rules which are generally thought to govern economic relationships in the market place. Whether such intervention was wise or effective is a question best left to future social historians with the relative advantage of hindsight. It is appropriate, for the moment, merely to observe that where the regulations promulgated by law makers conflict with the laws of economic reality, there arise powerful incentives for all concerned to devise a way to circumvent them.

The plaintiffs are tenants who moved into the premises around which this proceeding revolves, at a time when the building was devoted largely to commercial use. The defendants are a cooperative corporation, its sponsor and a major shareholder who have invested large sums in renovating the building for use as a residential cooperative. The plaintiffs request reformation of the commercial leases which they signed to encompass residential use, together with declaration that they are protected by the Rent Stabilization Law (Administrative Code of City of New York § YY51-1.0 et seq.) under which they claim a right to remain in possession under mandatory renewal leases.

The defendants move for partial summary judgment for rent arrears. The plaintiffs cross-move for partial summary judgment, for an order dismissing defendants' affirmative defenses and for immediate trial of any remaining issues.

The plaintiffs' cross motion seeks summary judgment as to their 1st, 5th, 6th, 8th, 9th and 11th causes of action and "those parts of their 4th and 7th causes of action proved by evidence herewith submitted." They seek dismissal of affirmative defenses to their 3rd, 7th, 9th and 12th causes of action. Since the pleadings subject virtually the entire case to summary judgment, this Court will liberally exercise the prerogative to search the record in the interest of bringing this matter to an expeditious conclusion. The prerogative extends both to the motion for summary judgment (Wilkinson v. Skinner, 34 N.Y.2d 53, 356 N.Y.S.2d 15, 312 N.E.2d 158 (1974)) and to the motion to dismiss the affirmative defenses (Rand v. The Hearst Corporation, 31 A.D.2d 406, 298 N.Y.S.2d 405 (1st Dept., 1969), aff'd 26 N.Y.2d 806, 309 N.Y.S.2d 348, 257 N.E.2d 895 (1970).

Plaintiffs seek reformation of their leases to allow residential use (1st and 5th causes of action), injunction of the cooperative offering plan pursuant to General Business Law Sections 352-e and 352-ee (8th and 9th causes of action), deduction of payments made to Con Edison for utilities (11th cause of action), damages for harassment and retaliation and rent overcharges (4th and 7th causes of action) fraud (3rd cause of action), emotional distress (10th cause of action), wrongful eviction (12th cause of action), and costs and fees, including reasonable attorney fees (6th cause of action). In addition, plaintiffs assert breach of the implied warranty of habitability (2nd cause of action).

The history of attempts by the courts to balance the interests of a tenant who has invested money and effort to render loft space amenable to human habitation and those of an owner who has invested money to convert a commercial building into cooperative apartments has been marked by an attempt to apply laws to a situation which the draftsmen never envisioned (See Corris v. 129 Front Co., 85 A.D.2d 176, 447 N.Y.S.2d 480). It has been a tortuous effort at regulation and the results are unspectacular.

Even so basic a question as whether the Rent Stabilization Law should be applied to premises which contained fewer than six dwelling units as of January, 1974, has been the subject of considerable debate (compare Lipkis v. Krugman, 111 Misc.2d 445, 444 N.Y.S.2d 342 with 123 E. 18th St. Corp. v. Gisler, 113 Misc.2d 718, 448 N.Y.S.2d 926 and Duane Thomas Loft Tenants Assn. v. Sylvan Lawrence Co., 117 Misc.2d 360, 458 N.Y.S.2d 792).

Much of the plaintiff tenants' case rests on their claim to rent-stabilized status. Plaintiffs contend that the issue has already been decided in their favor by virtue of the decision in Captain Crow Management Ltd. v. Caligula Amusements Ltd. (L & T 124554/79, Civ.Ct., N.Y. Co.) which involved the penthouse in the same building. Citing Mandel v. Pitkowsky, 102 Misc.2d 478, 425 N.Y.S.2d 926, aff'd 76 A.D.2d 807, 429 N.Y.S.2d 550, the Court held inCaligula that the subject commercial building was a de facto multiple dwelling subject to the Multiple Dwelling Law (Sec. 4, subd. [7] ). It therefore dismissed the petition on account of the petitioner's failure to file a multiple dwelling registration statement pursuant to Civil Court Rule 2900.21(f) (22 NYCRR). The Court went on to apply the dictum of Mandel to the effect that the premises fell within the scope of the Rent Stabilization Law. It is clear, however, that the tenants in Mandel had occupied their apartments for many years ("approximately 12 years" Id. at 480, 425 N.Y.S.2d 926), that the landlord had given assurances that steps necessary to legalization of residential occupancy would be taken, that some efforts had been made in this direction and that, in the opinion of Appellate Term, 1st Department, none of the exemptions in the Emergency Tenant Protection Act, Section 5 (E.T.P.A.; L.1974, ch. 576, § 4, as amended) applied to the case. Quite apart from any factual differences with Mandel, it is equally clear that the Court in Caligula never considered the relevance of the E.T.P.A. exemptions to the matter before it. Finally, dictum founded upon dictum is not entitled to collateral estoppel effect (Siegel, New York Practice, Sec. 465). The tenants reliance on this case is therefore unfounded.

In considering the issue of rent stabilized status, the E.T.P.A., Section 5 provides, in pertinent part:

"A declaration of emergency may be made ... as to all or any class or classes of housing accommodations in a municipality, except ...

"(4)(a) housing accommodations in a building containing fewer than six dwelling units...

"(5) Housing accommodations in buildings completed or buildings substantially rehabilitated as family units on or after January first, nineteen hundred seventy-four" (emphasis added).

The first question which arises concerns the legislature's use of the phrase "all or any class or classes of housing accommodations". In this regard, it is noted that lofts were not regarded as a "class" of accommodations recognized under state housing statutes until "interim multiple dwellings" were defined in the "Loft Law" (Art. 7C, M.D.L.; L.1982, c. 349), nearly a decade after the E.T.P.A. was drafted.

Plaintiffs allege that, as of January, 1974, there were five lofts in use as residential units. The rest of the building was presumably empty commercial space. By June of 1974, it is claimed that there were six units being used for residential purposes. Under these facts, is the building subject to the Rent Stabilization Law by virtue of the cited E.T.P.A. provisions?

The decision in 129 East 56th Street Corp. v. Harrison, 122 Misc.2d 799, 473 N.Y.S.2d 910 (App.Term, 1st Dept., 1984), construed the E.T.P.A. Sec. 5(a)(4)(a) to require six residential units as of June 20, 1974 (the date the New York City Council declared an emergency) in order for rent stabilization to apply. On the strength of the allegations in plaintiffs' moving papers, this statutory condition has been fulfilled and defendants may not rely on this exemption to exclude them from the statutory scheme.

The substantial rehabilitation exemption of E.T.P.A. § 5(a)(5) is another matter, however. It cannot reasonably be disputed that the subject building has undergone substantial renovation and that it has been converted from commercial to residential use. Out of the ten floors ultimately used for living space, five were converted to residential use subsequent to January, 1974. Under even a strict interpretation of the statutory exemption, the subject building clearly falls within its purview (see e.g. Goodman v. Ramirez, 100 Misc.2d 881, 420 N.Y.S.2d 185; Hickey v. Bomark Fabrics, 111 Misc.2d 812, 445 N.Y.S.2d 681, aff'd on other grounds, 120 Misc.2d 597, 467 N.Y.S.2d 496; Romanow v. Heller, 121 Misc.2d 886, 469 N.Y.S.2d 876). A more liberal construction exempts any unit converted from commercial to residential use after January 1, 1974 (Lipkis v. Krugman, 111 Misc.2d 445, 444 N.Y.S.2d 342, supra ).

These cases interpret the substantial rehabilitation exemption and require that the entire structure be substantially renovated and not just the individual unit sought to be exempted. The obvious problem with this approach is that a renovation project of this magnitude is likely to extend over a number of years and to involve large amounts of capital. To be practical, it requires that the building be emptied to permit the work to proceed efficiently. But, the rent control laws as a whole render such a rehabilitation project virtually impossible. Given the pressure which artificially low rents exert on profitability, it is unlikely that smaller landlords could obtain the necessary financing. But, even ignoring the capital requirements, the antipathy of the regulatory structure towards the eviction of tenants makes such an undertaking impractical.

An alternative construction of the...