Dugan v. London Terrace Gardens, L.P.

• Decision Date: 17 September 2019
• Docket Number: 603468/09,Index 8716-8717-8718-8719
• Citation: 177 A.D.3d 1,110 N.Y.S.3d 3
• Parties: William DUGAN, et al., Plaintiffs-Respondents-Appellants, v. LONDON TERRACE GARDENS, L.P., Defendant-Appellant-Respondent. William Dugan, et al., Plaintiffs-Respondents, v. London Terrace Gardens, L.P., Defendant-Appellant, David Blech, et al., Respondents.
• Court: New York Supreme Court — Appellate Division

177 A.D.3d 1

110 N.Y.S.3d 3

William DUGAN, et al., Plaintiffs-Respondents-Appellants,

v.LONDON TERRACE GARDENS, L.P., Defendant-Appellant-Respondent.

William Dugan, et al., Plaintiffs-Respondents,

v.London Terrace Gardens, L.P., Defendant-Appellant,David Blech, et al., Respondents.

603468/09

Index 8716-8717-8718-8719

Supreme Court, Appellate Division, First Department, New York.

ENTERED: SEPTEMBER 17, 2019

Borah Goldstein Altschuler Nahins & Goidel, P.C., New York (Robert D. Goldstein and Paul N. Gruber of counsel), and Proskauer Rose LLP, New York (Richard M. Goldstein and Seth D. Fier of counsel), for appellant-respondent/appellant.

Himmelstein, McConnell, Gribben, Donoghue & Joseph LLP, New York (Ronald S. Languedoc, William Gribben, Kevin R. McConnell and Jesse Gribben of counsel), Emery Celli Brinckerhoff & Abady LLP, New York (Matthew Brinckerhoff of counsel), and Bernstein Liebhard LLP, New York (Joseph R. Seidman, Jr. of counsel), for respondents-appellants/respondents.

Rosalyn H. Richter, J.P., Judith J. Gische, Cynthia S. Kern, Jeffrey K. Oing, Peter H. Moulton, JJ.

RICHTER, J.P.

These four appeals arise from consolidated class action litigations challenging the deregulation of hundreds of apartments at London Terrace Gardens (London Terrace), a 10–building housing complex in Manhattan. Plaintiffs are current and former London Terrace tenants, and defendant London Terrace Gardens, L.P. is the owner of the complex. London Terrace, which consists of approximately 1,000 units, was constructed in 1931, and was originally subject to rent control laws. Pursuant to the 1974 Emergency Tenant Protection Act, upon vacancy, rent controlled apartments in London Terrace became subject to rent stabilization. Since 1974, there has been a mix of rent stabilized and rent controlled apartments in the complex.

Beginning in 1993, defendant began to deregulate apartments in London Terrace. The Rent Regulation Reform Act of 1993 allowed building owners to deregulate rent-regulated apartments where rents and/or occupants' incomes exceeded certain statutory thresholds. However, in 2009, the Court of Appeals made it clear that building owners were not entitled to deregulate units while they were simultaneously receiving tax benefits under New York City's J–51 tax abatement and exemption program ( Roberts v. Tishman Speyer Props., L.P. , 13 N.Y.3d 270, 279–280, 890 N.Y.S.2d 388, 918 N.E.2d 900 [2009] ).¹ Further, apartments in buildings receiving these tax benefits "must be registered with the State Division of Housing and Community Renewal (DHCR), and are generally subject to rent stabilization for at least as long as the J–51 benefits are in force (see 28 RCNY at 5–03[f] )" ( id. at 280, 890 N.Y.S.2d 388, 918 N.E.2d 900 ; see Rent Stabilization Law [RSL] [Administrative Code of City of NY] § 26–504[c] [rent stabilization law shall apply to dwelling units in a building receiving J–51 benefits] ).

On July 1, 2003, after performing qualifying improvements to the property, defendant began receiving J–51 tax benefits.² Prior to that date, defendant had already deregulated approximately 95 apartments in the complex. However, defendant did not, as required by law, return these previously deregulated units to rent regulation. Further, after the J–51 benefits were conferred, defendant continued to deregulate additional apartments, despite the fact that the complex was receiving J–51 benefits. Defendant charged market rents for the deregulated units, did not treat tenants in those units as rent regulated, did not register the apartments with DHCR, and did not follow the rent laws in calculating the proper rents to be charged.

On November 13, 2009, shortly after Roberts was decided, plaintiff William Dugan and nine other London Terrace tenants brought this class action alleging that defendant wrongfully deregulated apartments while receiving J–51 tax benefits, and failed to return previously deregulated apartments to rent stabilization when the J–51 benefits commenced. On December 8, 2009, plaintiff James Doerr brought a separate class action against defendant making similar allegations. In both complaints, plaintiffs alleged that, as a result of defendant's wrongful acts, they were denied rent-regulated status and were charged amounts in excess of the legal rents for their units. Plaintiffs sought, inter alia, a declaration that their apartments are subject to rent regulation, and monetary damages for rent overcharges. Defendant answered and asserted various counterclaims and affirmative defenses, including that the action was barred by the statute of limitations, and that Roberts should not be applied retroactively.

The two actions were subsequently consolidated and a class was certified. Plaintiffs then moved to dismiss defendant's counterclaims and affirmative defenses, and sought partial summary judgment seeking, inter alia, a determination of the proper methodology for calculating the legal rents and the amount of any rent overcharges. Defendant cross-moved for summary judgment seeking, inter alia, dismissal of the complaint on the ground that Roberts is not retroactive, dismissal of the complaint as time-barred, and a declaration on the proper methodology to calculate rents. Both plaintiffs and defendant submitted their own proposed method for calculating rents and overcharges. In a decision entered November 22, 2017, the motion court rejected defendant's statute of limitations defense, and concluded that Roberts may be applied retroactively. The court also set forth a methodology for calculating the legal rents and the amount of any overcharges. Both plaintiffs and defendant appeal from the motion court's order.

Defendant maintains that when it deregulated the affected units, it was relying in good faith on DHCR's pre- Roberts interpretation of the relevant statutes, and that applying Roberts under those circumstances would offend due process. At the outset, defendant is collaterally estopped from advancing its due process argument. We rejected this claim in Matter of London Terrace Gardens, L.P. v. City of New York , 101 A.D.3d 27, 31–32, 953 N.Y.S.2d 28 [1st Dept. 2012], lv denied 21 N.Y.3d 855, 2013 WL 1876502 [2013], a suit where defendant unsuccessfully tried to withdraw from the J–51 program. Although the London Terrace Gardens action arose in a different context, the due process issue decided by the Court there was identical to the one before us now, and defendant had a full and fair opportunity to litigate the issue.

In any event, defendant's argument fails on the merits. In Gersten v. 56 7th Ave. LLC , 88 A.D.3d 189, 198, 928 N.Y.S.2d 515 [1st Dept. 2011], this Court held that Roberts should be applied retroactively because the decision simply interpreted a statute that had been in effect for a number of years, and did not establish a new principle of law. Since then, we have consistently adhered to Gersten , and have specifically rejected due process challenges to the retroactivity of Roberts (see Matter of London Terrace Gardens , 101 A.D.3d at 31–32, 953 N.Y.S.2d 28 ; Roberts v. Tishman Speyer Props., L.P. , 89 A.D.3d 444, 445–446, 932 N.Y.S.2d 45 [1st Dept. 2011] [ Roberts II ] ).

Defendant attempts to distinguish Gersten and Roberts II , on the ground that, unlike the building owners in those cases, defendant explicitly relied on DHCR's interpretation of the decontrol statutes at the time it decided to enter the J–51 program. However, we rejected this very same argument in Matter of London Terrace Gardens , 101 A.D.3d at 31–32, 953 N.Y.S.2d 28, and defendant fails to persuasively distinguish that case (see also Gurnee v. Aetna Life & Cas. Co. , 55 N.Y.2d 184, 192, 448 N.Y.S.2d 145, 433 N.E.2d 128 [1982], cert denied 459 U.S. 837, 103 S.Ct. 83, 74 L.Ed.2d 79 [1982] [where Court of Appeals retroactively applied a judicial decision rejecting the Insurance Department's interpretation of the statute, stating that a judicial decision construing the words of a statute ... does not constitute the creation of a new legal principle"). Thus, defendant's challenge to the retroactivity of Roberts is unavailing.

On June 14, 2019, New York State enacted the Housing Stability and Tenant Protection Act of 2019 (L 2019, ch 36)(HSTPA), landmark legislation making sweeping changes to the rent laws and adding greater protections for tenants throughout the State.³ Of relevance to this appeal is Part F of the HSTPA, which amended RSL § 26–516 and CPLR 213–a, which govern claims of rent overcharge and the statute of limitations for bringing such claims. The legislation directed that the statutory amendments contained in Part F "shall take effect immediately and shall apply to any claims pending or filed on or after such date" (HSTPA § 1, Part F, § 7). Because plaintiffs' overcharge claims were pending on the effective date of Part F of the HSTPA, the changes made therein are applicable here (see Matter of Kandemir v. New York State Div. of Hous. & Community Renewal , 4 A.D.3d 122, 771 N.Y.S.2d 341 [1st Dept. 2004] ; Matter of Pechock v. New York State Div. of Hous. & Community Renewal , 253 A.D.2d 655, 677 N.Y.S.2d 554 [1st Dept. 1998] ; Zafra v. Pilkes , 245 A.D.2d 218, 666 N.Y.S.2d 633 [1st Dept. 1997] ).

We reject defendant's contention that the complaint should be dismissed as time-barred. The newly-enacted CPLR 213–a provides that "an overcharge claim may be filed at any time," however "[n]o overcharge penalties or damages may be awarded for a period more than six years before the action is commenced." Likewise, the amended version of RSL § 26–516(a)(2) provides that an overcharge complaint "may be filed with [DHCR] or in a court of competent jurisdiction at any time, however any recovery of overcharge penalties shall be limited to the six years preceding the complaint." Because both of these statutes provide that an overcharge complaint can be brought "at any time," plaintiffs' claims are timely. However, they may recover for...