Eastern Pork Products Co. v. New York State Div. of Housing and Community Renewal

• Decision Date: 17 November 1992
• Citation: 590 N.Y.S.2d 77,187 A.D.2d 320
• Parties: In the Matter of the Application of EASTERN PORK PRODUCTS COMPANY, Petitioner-Appellant, For a Judgment Pursuant to Article 78 of The Civil Practice Law and Rules, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Richard Baronio and Rosalind Baronio, Respondents-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 77

590 N.Y.S.2d 77

187 A.D.2d 320

In the Matter of the Application of EASTERN PORK PRODUCTS COMPANY, Petitioner-Appellant For a Judgment Pursuant to Article 78 of The Civil Practice Law and Rules, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL Richard Baronio and Rosalind Baronio Respondents-Respondents.

Supreme Court, Appellate Division First Department.

Nov. 17, 1992.

Before SULLIVAN, J.P., and CARRO, ASCH and RUBIN, JJ.

MEMORANDUM DECISION.

Judgment, denominated an order, Supreme Court, New York County (Phyllis Gangel-Jacob, J.), entered April 15, 1991, which denied petitioner's CPLR article 78 petition to annul a final order of the respondent New York State Division of Housing and Community Renewal (DHCR) finding that the subject building was not substantially rehabilitated pursuant to section 5(a)(5) of the Emergency Tenant Protection Act of 1974, unanimously reversed, on the law, without costs, and the matter is remanded to the District Rent Administrator for a de novo factual determination as to the scope of the rehabilitation.

The building in question, a brownstone containing three floors and a basement level, is owned by the petitioner-appellant Eastern Pork Products Company. Respondents-respondents Richard and Rosalind Baronio have been the tenants of Apt. 3 on the top floor of the building since March 1, 1983. On June 17, 1987, the Baronios filed a complaint with DHCR alleging that the building is rent-stabilized, and that the owner had collected a rent overcharge for their apartment. The owner answered the complaint by stating that the building was exempt from stabilization because it had fewer than six units, and because "the apartments were constructed after 1974", thus apparently invoking section 5(a)(5) of the Emergency Tenant Protection Act of 1974 (ETPA; L 1974, ch 576, § 4; McKinney's Uncons Laws of NY § 8625[a][5], which exempts from rent stabilization "housing accommodations in buildings completed or buildings substantially rehabilitated as family units on or after January first, nineteen hundred seventy-four."

On December 11, 1987, the District Rent Administrator (DRA) issued an order dismissing the Baronios' rent overcharge complaint solely on the ground that the building contained less than six housing accommodations. The DRA did not address the issue of substantial rehabilitation of the building.

On January 14, 1988, the Baronios filed a petition for Administrative Review (PAR) with DHCR, refiled on March 4, 1988 because of a defect in the original filing, seeking revocation of the December 11, 1987 order. The owner's answer, as here pertinent (the issue of the number of dwelling units in the building having been removed from this appeal), reasserted that the building had been substantially rehabilitated as family units after January 1, 1974, and was therefore exempt from stabilization pursuant to ETPA § 5(a)(5) and Rent Stabilization Code (9 NYCRR) § 2520.11(e). The owner submitted in support of its position an Altered Building Application, a construction cost analysis relating to the alleged rehabilitation, a $72,000 invoice relating to a portion of the work, and floor plans which had been filed with the Department of Buildings. The owner asserted that at the time of the rehabilitation of the building in 1982-1983, it contained a total of 12 vacant Class B rooms on the first, second and third floors, and one occupied Class A apartment on the basement level. The pre-existing rooms on the first, second and third floors were allegedly removed, and new units were constructed consisting of "single floor-through suites" containing two Class B rooms on each floor. Existing partitions were removed, and the configurations of the apartments were altered. New electrical feeders, a new ventilation system and new baseboard heating were installed. The rehabilitation, which cost $108,385, also included unspecified work on the kitchens, vanities, stoves and refrigerators, relocation of sprinklers and a new water heater.

On April 20, 1990, the DHCR issued an order granting the Baronios' PAR, and reversed the DRA's finding of exemption, concluding, as here pertinent, that the building did not qualify under the ETPA § 5(a)(5) exemption for buildings substantially rehabilitated as family units on or after January 1, 1974. Although the Deputy Commissioner did not dispute the nature, extent or cost of the work done on the building, except to observe that "the floors, ceiling and walls remained in place throughout the renovation", he reasoned that for the exemption to apply, it was required that (1) every apartment in the building had to be rehabilitated (the basement apartment was not); (2) the building must have been totally vacant during the rehabilitation (the basement apartment was not); and (3) the entire interior of the building had to have been "gutted".

The owner brought an article 78 proceeding seeking to annul the DHCR order on grounds that it was arbitrary and lacking a rational basis, in that the DHCR failed to apply the correct standard for determining whether the building had been substantially rehabilitated. The DHCR, which had previously assumed the truth of the owner's submissions regarding the extent of the renovations, claimed for the first time that the extent of the work done on the building was less than that claimed by the owner, and that the owner's documentation of the work done was inadequate. The IAS court adopted DHCR's new arguments in confirming the order and dismissing the petition, and thus violated "the settled rule that judicial review of an administrative determination is limited to the grounds invoked by the agency" (Matter of Scherbyn v. Wayne-Finger Lakes Bd. of Coop. Educ. Servs., 77 N.Y.2d 753, 758, 570 N.Y.S.2d 474, 573 N.E.2d 562). The Court of Appeals further elaborated that " ' "[a] reviewing court, in dealing with a determination * * * which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency. If those grounds are inadequate or improper, the court is powerless to affirm the administrative action by substituting what it considers to be a more adequate or proper basis" ' " (id.) The IAS court erred in failing to address the correctness of the standards adopted by DHCR in determining whether the owner's renovations constituted a substantial rehabilitation of the building, to wit, that every apartment in the building had to be substantially rehabilitated, that the building had to be totally vacant during the rehabilitation, and that the rehabilitation must have included a "gutting" of all interior elements of the building.

The correctness of DHCR's interpretation of the statute must be considered in the light of the following principles set forth in Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459, 426 N.Y.S.2d 454, 403 N.E.2d 159:

Where the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices or entails an...