Citadel Estates, LLC v. N.Y.C. Hous. Auth.

• Decision Date: 30 January 2013
• Citation: 960 N.Y.S.2d 598,39 Misc. 3d 880
• Parties: CITADEL ESTATES, LLC, et al., Plaintiffs, v. NEW YORK CITY HOUSING AUTHORITY, Defendants.
• Court: New York Supreme Court

39 Misc.3d 880

960 N.Y.S.2d 598

CITADEL ESTATES, LLC, et al., Plaintiffs,

v.NEW YORK CITY HOUSING AUTHORITY, Defendants.

Supreme Court, Kings County, New York.

Jan. 30, 2013.

Stern & Stern, Esqs., Brooklyn, for Plaintiff.

Sonya Kaloyanides, Esq., New York, for Defendant.

DAVID SCHMIDT, J.

DefendantNew York City Housing Authority(the Housing Authority) moves for an order: (1) pursuant to CPLR 3211(a)(5) and (a)(7), dismissing the complaint of plaintiffsCitadel Estates, L.L.C.; Fortress Crotona, L.L.C.; Fortress 31, L.L.C.; and M.Z. Partners, L.L.C. (hereinafter collectively referred to as the landlords), in its entirety because plaintiffs failed to challenge the Housing Authority's determination in an Article 78 proceeding; (2) even if plaintiffs had brought an Article 78 proceeding, their claims are time barred; (3) the complaint fails to state a cause of action; and (4) with respect to some claims, plaintiffs did not comply with the notice and pleading requirements set forth in Public Housing Law § 157, plaintiffs lack standing to challenge the Housing Authority's determination to terminate tenants from the Section 8 program and plaintiffs' claims are moot because the Housing Authority is voluntarily providing all the relief to which they are entitled.

Facts and Procedural Background

Plaintiffs, four landlords who participate in the federally funded Section 8 rent subsidy program (the Section 8 Program), commenced this breach of contract action on December 30, 2011 seeking to recover increased rent subsidies that were allegedly unpaid for apartments located in several buildings in the Bronx, which are occupied or were previously occupied by tenants now or previously participating in the Section 8 Program administered by the Housing Authority.For 26 tenants, the landlords claim that the Housing Authority has refused to pay rent increases which have been authorized under the New York State Rent Stabilization Law, as approved by the Rent Guidelines Board.For three tenants, the landlords claim that the Housing Authority suspended rent subsidy payments based upon "failed" Housing Quality Standards (HQS) inspections.For three tenants, the landlords claim that the Housing Authority stopped making subsidy payments after finding that the tenant was no longer entitled to participate in the Section 8 Program.The landlords assert that they were never given notice of the Housing Authority's determinations to refuse to pay, to suspend or to terminate the housing assistance payments.

The Section 8 Program

Through the Section 8 Program, the United States Department of Housing and Urban Development(HUD) provides rent subsidies to landlords of apartments occupied by qualifying low income families to enable them to afford decent, safe and sanitary housing (see42 USC §§ 1437 [a][1][A]and1437f[a] ).The requirements for the Section 8 Program are set forth in the regulations promulgated by HUD (see24 CFR, Part 982).The Section 8 Program involves four distinct legal relationships that are addressed in the federal regulations: (1) the relationship between the Housing Authority and HUD, through which HUD finances the Section 8 Program pursuant to an Annual Contributions Contract with the Housing Authority; (2) the relationship between the Housing Authority and the tenant, created by the issuance of a voucher; (3) the relationship between the Housing Authority and the landlord, which is governed by a Housing Assistance Payment (HAP) Contract, under which the Housing Authority pays the Section 8 landlord monthly rent subsidy payments, known as housing assistance payments, from funds allocated by HUD, which comprise the difference between the total rent due for an apartment leased by the landlord to a qualifying tenant and the amount of rent due from the tenant pursuant to the controlling federal regulations (see24 CFR §§ 982.305 [c] and [e];24 CFR § 982.451 ); and (4) the relationship between the tenant and the landlord, which is governed by a lease.

The Housing Authority is a public benefit corporation created under Public Housing Law § 401 to operate and to maintain low income housing in New York City.The Housing Authority is one of the agencies that administers the Section 8 Program.

As is also relevant to the instant dispute, controlling regulations provide that the Housing Authority may only make housing assistance payments for apartments that meet housing quality standards as established by HUD ( 24 CFR §§ 982.401and982.404 [a] ).All apartments subsidized with Section 8 funds must be inspected and must meet HQS prior to the initial lease term and at least annually thereafter ( 24 CFR § 982.405 ).The HAP Contract terminates automatically 180 calendar days after the last housing assistance payment is made to the owner ( 24 CFR § 982.455 ).Further, a Section 8 tenant must regularly furnish the Housing Authority with information establishing total household income and composition ( 24 CFR § 982.551 [b] ).The Housing Authority may terminate a Section 8 subsidy if a participant fails to comply with the program requirements ( 24 CFR §§ 982.551and982.552 ).

The regulations further provide that a landlord may request an adjustment of the contract rent upon a renewal of a Section 8 lease ( 24 CFR § 982.519 [a] ).The landlord must request the adjustment by giving the Housing Authority 60 days notice and by complying with all requirements under the HAP contract ( 24 CFR §§ 982.519 [b][4], [5] and [6] ).The Housing Authority must then determine whether the rent requested by the owner is reasonable in comparison to rent for other comparable, unassisted units ( 24 CFR §§ 982.507 [a] and [b] ).The adjustments will take effect commencing at least 60 days after the Housing Authority receives a landlord's request for a rent increase ( 24 CFR § 982.519 [b][5] ).

The Housing Authority's Claim that the Landlords Cannot Challenge Its Determinations in a Contract Action

The Parties' Contentions

The Housing Authority first argues that the instant action must be dismissed because the landlords can only challenge determinations that it makes in an Article 78 proceeding.More specifically, the Housing Authority contends that because the landlords are seeking relief in the nature of certiorari to review its decision to suspend housing assistance payments or to refuse to implement lease renewal increases, or mandamus to compel it to act upon the landlords' requests for lease renewal increases, the claims must be interposed in an Article 78 proceeding.

In opposition, the landlords argue that they could not commence an Article 78 proceeding to review the Housing Authority's determinations because no determinations were issued.The landlords also note that Fortress 31 sent a letter dated March 2, 2011 to the Housing Authority requesting written confirmation of what transpired with regard to Debra Ramsey's Section 8 subsidy.Although the Housing Authority sent a notice to Ms. Ramsey, dated June 30, 2010, advising her of its intention to terminate her Section 8 participation, no response was ever sent to Fortress 31.The landlords also aver that it is well established that in a dispute regarding a government contract, an Article 78 proceeding is neither the exclusive nor the appropriate remedy.

Discussion

"It is well settled that where damages allegedly have been sustained due to a breach of contract by a public official or governmental body, the claim must be resolved through the application of traditional rules of contract law"(Steve's Star Serv. v. County of Rockland,278 A.D.2d 498, 499, 718 N.Y.S.2d 72[2000], quotingAbiele Contr. v. New York City School Constr. Auth.,91 N.Y.2d 1, 8, 666 N.Y.S.2d 970, 689 N.E.2d 864[1997] ).Thus, for example, in a dispute concerning the sum due under a contract to transport handicapped children to school, it was held that mandamus to compel payment of the outstanding invoice did not lie and that the dispute was properly resolved in a breach of contract action (Steve's Star Serv.,278 A.D.2d at 500, 718 N.Y.S.2d 72).Similarly, an action alleging that a village failed to compensate a plaintiff is properly brought as a contract action (see e.g.Garrigan v. Incorporated Vill. of Malverne,12 A.D.3d 400, 786 N.Y.S.2d 525[2004] ).

Nonetheless, the court finds that the claims raised by the landlords herein must be adjudicated in an Article 78 proceeding.In this regard, the court first rejects the landlords' contention that the Housing Authority's assertion that an Article 78 proceeding must be commenced to challenge its determinations is limited to cases in which the Housing Authority, for example, suspends a Section 8 subsidy because an apartment failed the HQS review (see e.g. Alpha Dynamics v. NYCHA, Civ. Ct., Bronx County, September 25, 2007, Alessandro, J., IndexNo. 22594/05), or removed a tenant from the Section 8 program because the tenant failed to provide income certifications (see e.g. 3015 Brighton Realty v. Housing Auth., Civ. Ct., Kings County, February 15, 2011, Baynes, J., IndexNo. 26484/11).After reviewing the language of the HAP Contract, the court finds that the landlords are not seeking to enforce a provision set forth therein, since the language provides that the rent and any increase in rent for a unit must be reasonable and must be determined in accordance with HUD requirements.¹Thus, any determination by the Housing Authority is not governed by the terms of the HAP Contract, but is instead controlled by a determination made by the Housing Authority in accordance with the regulations promulgated by HUD.The court therefore concludes that the determination of whether the landlords are entitled to an increase in the monthly rent subsidies payable to them must be reviewed in an Article 78 proceeding.Moreover, the Housing Authority cites numerous cases so holding and the landlords fail to offer any rationale that would compel the finding that these cases were erroneously decided...