Dugan v. London Terrace Gardens, L.P.

• Decision Date: 06 June 2011
• Docket Number: No. 603468/2009.,603468/2009.
• Citation: 950 N.Y.S.2d 608
• Parties: William DUGAN, Marsha D'Yans, Georgette Gagnon, Lowell D. Kern, Michael Mccurdy, Jose Pelaez, Tracy Snyder, Michael J. Walsh, Leslie M. Mack, and Anita Zitis, on Behalf of Themselves and All Other Persons Similarly Situated, Plaintiffs, v. LONDON TERRACE GARDENS, L.P., Defendant. James Doerr, on Behalf of Himself and All Other Persons Similarly Situated, Plaintiffs, v. London Terrace Gardens, L.P., Defendant.
• Court: New York Supreme Court

950 N.Y.S.2d 608

William DUGAN, Marsha D'Yans, Georgette Gagnon, Lowell D. Kern, Michael Mccurdy, Jose Pelaez, Tracy Snyder, Michael J. Walsh, Leslie M. Mack, and Anita Zitis, on Behalf of Themselves and All Other Persons Similarly Situated, Plaintiffs,

v.LONDON TERRACE GARDENS, L.P., Defendant.

James Doerr, on Behalf of Himself and All Other Persons Similarly Situated, Plaintiffs,

v.London Terrace Gardens, L.P., Defendant.

No. 603468/2009.

Supreme Court, New York County, New York.

June 6, 2011.

Matthew D. Brinckerhoff Esq., Emery Celli Brinckerhoff & Abady LLP, William Gribben Esq. and Ronald S. Languedoc Esq., Himmelstein, McConnell, Gribben, Donoghue & Joseph, New York, for Plaintiffs Dugan, D'Yans, Gagnon, Kern, McCurdy, Pelaez, Snyder, Walsh, Mack, and Zitis.

Ronald Aranoff Esq., Hanna R. Neier Esq., and Christian Siebott Esq., Bernstein Liebhard LLP, New York, for Plaintiff Doerr.

Robert D. Goldstein Esq. and Paul N. Gruber Esq., Borah, Goldstein, Altschuler, Nahins & Goidel, P.C. Harry Frischer Esq., Richard M. Goldstein Esq., and Steven H. Holinstatt Esq., Proskauer Rose LLP, New York, for Defendant.

LUCY BILLINGS, J.

I. BACKGROUND

Plaintiffs in these two actions, consolidated for this decision, on behalf of themselves and similarly defined classes of tenants at defendant's building complex London Terrace Gardens, claim that defendant has charged them excessive rents under the Court of Appeals' interpretation of applicable rent stabilization laws. Roberts v. Tishman Speyer Props., L.P., 13 NY3d 270 (2009). London Terrace Gardens consists of almost 1,000 apartments. Plaintiffs claim defendant has unlawfully removed approximately 30% of these units from rent stabilization or control and charged their tenants excessive rent.

Defendant moves to dismiss or stay each action to permit the New York State Division of Housing and Community Renewal (DHCR) to resolve plaintiffs' claims concerning whether their apartments are subject to the rent stabilization and control laws at issue, whether the tenants have been charged excessive rent, and what rent was to have been charged for what past period and is to be charged currently. C.P.L.R. §§ 2201, 3211(a). Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285–86, determined that DHCR's misinterpretation since 2000 of the rent stabilization laws at issue had caused rent overcharges to tenants of other large building complexes in New York County. Nevertheless, defendant insists that DHCR assume primary jurisdiction over the rent to be charged in defendant's building complex.

This decision more comprehensively explains the court's prior order denying defendant's motion. The court withheld this decision previously in an abundance of caution not to jeopardize the progress of settlement negotiations over the past year. At the parties' last appearance, however, defendant demonstrated that that promising progress had reached a standstill.

II. THE APPLICABLE RENT STABILIZATION AND CONTROL LAWS AND THEIR INTERPRETATION

The “luxury decontrol” provisions of the New York City Rent Control Law and Rent Stabilization Law allow a landlord to remove apartments from rent control or stabilization and charge market rent when tenants' incomes exceed specified thresholds. N.Y.C. Admin. Code §§ 26–403.1, 26–504.3. Once a landlord removes apartments from rent regulation and charges market rent, the landlord no longer: must renew the tenants' leases or renew them for any prescribed period, is limited to the original lease terms or limited in negotiable rent increases, must provide the same services, or is subject to prohibitions against harassment of tenants.

Where landlords receive a New York City “J–51” tax exemption or abatement for their apartments under New York Real Property Tax Law § 489(1)(a) and New York City Administrative Code §§ 11–243 and 11–244 (formerly §§ J51–2.5 and J51–5), the apartments are subject to rent regulation, N.Y.C. Admin. Code §§ 11–243(i)(1), 26–504(c), and the luxury decontrol provisions do not apply. N.Y.C. Admin. Code §§ 26–403(e)(2)(j) and (e)(2)(k), 26–504.1, 26–504.2(a). DHCR's Rent Stabilization Code and its Rent and Eviction Regulations for rent controlled units, interpreting the luxury decontrol statutes, however, allowed a landlord to avail itself of luxury decontrol of apartments that already were rent stabilized or controlled when the landlord began receiving a J–51 tax exemption or abatement for those apartments. DHCR's regulations also allowed a landlord to continue charging market rent for apartments already deregulated under luxury decontrol when the landlord began receiving J–51 tax benefits for the building, but the New York City Department of Housing Preservation and Development (HPD) had reduced them in proportion to the percentage of deregulated apartments in the building.

Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285–86, determined that this regulatory interpretation, 9 N.Y.C.R.R. § 2520.11(r)(5)(i) and (s)(2)(i), of the Rent Stabilization Law, N.Y.C. Admin. Code §§ 26–504.1 and 26–504.2(a), was contrary to the statutes' terms that a landlord may not avail itself of luxury decontrol where the apartment “became subject to” rent stabilization “by virtue of receiving” a J–51 tax exemption or abatement. The statutory terms prohibiting luxury decontrol of rent controlled apartments receiving J–51 tax benefits, N.Y.C. Admin. Code § 26–403(e)(2)(j) and (e)(2)(k), are identical to §§ 26–504.1 and 26–504.2(a), just as DHCR's regulations misinterpreting each statute are comparable. 9 N.Y.C.R.R. §§ 2200.2(f)(19)(v) and (20)(ii), 2520.11(r)(5)(i) and (s)(2)(i).

The Roberts ruling, however, in turn raises further issues that the current two actions still must determine. First is the extent to which defendant's unlawful decontrol of apartments when tenants' incomes exceeded the thresholds for luxury decontrol, despite defendant's receipt of a J–51 tax exemption or abatement, must be remedied retroactively, requiring the landlord to repay past overcharges to tenants. Related to retroactivity is when plaintiffs' claims accrued and whether they survive under the applicable statute of limitations.

Third is whether defendant lawfully may avail itself of luxury decontrol for apartments to which it attributes no J–51 tax benefits, while receiving them for other apartments in its building, because HPD reduced them in proportion to the percentage of decontrolled apartments in the building. The Appellate Division in Roberts held that “ all apartments in buildings receiving J–51 tax benefits are subject to the RSL during the entire period in which the owner receives such benefits.” Roberts v. Tishman Speyer Props., L.P., 62 AD3d 71, 80 (1st Dep't), aff'd,13 NY3d at 284 (emphasis added). In affirming, the Court of Appeals did not repeat that holding, but, when referring to the legislative history of Administrative Code §§ 26–504.1 and 26–504.2(a), emphasized that it “plainly indicates that ‘at no point’ would the luxury decontrol provisions apply to buildings which ‘received’ tax exemptions.” Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 287 (emphasis added). In fact the Rent Stabilization Law itself requires that it apply to: “ Dwelling units in a building ... receiving the benefits of section 11–243 or section 11–244.” N.Y.C. Admin. Code § 26–504(c) (emphases added). See Independence Plaza N. Tenants' Assn. v. Independence Plaza Assoc., LP, 29 Misc.3d 868, 877 (Sup.Ct. N.Y. Co.2010). Related to all the above issues is the extent to which any prior judicial or DHCR adjudicatory decisions specifically regarding plaintiffs' rent levels affect determination of the retroactivity and limitations of plaintiffs' claims and the lawfulness of decontrol in proportion to a reduction in the tax benefits.

In sum, defendant seeks that all these issues be resolved consistently throughout New York's residential real estate rental market, which only a central administrative forum like DHCR is capable of accomplishing. Defendant posits that DHCR will resolve these issues by considering all affected parties' interests.

While DHCR's resolution of the issues through rulemaking well might consider all stakeholders' interests, defendant concedes that DHCR in over 18 months still has not amended its rules to conform to Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285–86. Were the court to grant a stay, plaintiffs might lose their apartments without rent regulation while waiting indefinitely for DHCR to act. For these reasons alone, such an indefinite stay would be inequitable, denying plaintiffs a prompt and permanent adjudication of their claims. C.P.L.R. § 2201; Nezry v. Haven Ave. Owner LLC, 28 Misc.3d 1226, 2010 WL 3338545, at *5 (Sup.Ct. N.Y. Co.2010).

Nevertheless, even if DHCR may be counted on to act, a remand to DHCR of these building-wide actions or other building by building or unit by unit actions would prompt an adjudication only within the same context as the particular action. DHCR would be even further limited in these two actions, as it is unauthorized to decide whether to certify a class, determine its parameters, adjudicate plaintiffs' classwide claims, or grant the classwide relief plaintiffs seek. C.P.L.R. § 905. See9 N.Y.C.R.R. §§ 2207.1, 2207.5, 2207.6, 2526.1, 2527.1. On the other hand, DHCR remains free to set and implement policy on a broader scale, consistent with the governing statutes, and after considering the broader impact on all interests.

III. RETROACTIVITY

Of particular concern to defendant is the retroactive application of Roberts v. Tishman Speyer Props., L.P., 13 NY3d at 285–86, which would affect buyers and sellers of residential rental property, their lenders, and taxing authorities, who calculated prospective rental values based on DHCR's interpretation of the Rent Stabilization Law that the Court of Appeals upset. Owners of residential rental property applied for and obtained J–51 tax benefits for many years...