First Hudson Capital, LLC v. Seaborn, 2912.

• Decision Date: 05 August 2008
• Docket Number: No. 2912.,No. 570040/06,2912.,570040/06
• Parties: FIRST HUDSON CAPITAL, LLC, Respondent, v. RON SEABORN, Appellant.
• Court: New York Supreme Court — Appellate Division

54 A.D.3d 251

862 N.Y.S.2d 501

2008 NY Slip Op 6503

FIRST HUDSON CAPITAL, LLC, Respondent, v. RON SEABORN, Appellant.

No. 2912.

No. 570040/06

Appellate Division of the Supreme Court of the State of New York, First Department.

August 5, 2008.

Since it became effective December 20, 2000, Rent Stabilization Code (RSC) (9 NYCRR) § 2525.7 (b) makes it a violation to charge a roommate more than a proportional share of the rent. However, unlike RSC § 2525.6 (f), which permits an owner to terminate the tenancy of a tenant who charges his subtenant more than the legal regulated rent plus no more than 10 percent if the apartment is sublet fully furnished (see RSC § 2525.6 [b]), RSC § 2525.7 (b) does not provide for termination of the lease. Prior to enactment of RSC § 2525.7, it was the firm rule in this Department that "[t]here is no cause of action for rent profiteering with respect to a roommate" (Handwerker v Ensley, 261 AD2d 190, 191 [1999]). Such position was in accord with our holding in 520 E. 81st St. Assoc. v Roughton-Hester (157 AD2d 199, 202 [1990]) that a landlord may not evict a tenant for "profiteering" with respect to the rent charged a roommate. In so ruling, this Court stated: "Unlike the section pertaining to sublets, the paragraph in which the Legislature introduced the Roommate Law stresses the need to permit such living arrangements to continue and does not mention the elimination of speculation and profiteering as a purpose underlying the enactment of the statute (Seaview-Atlas Mfg. Co. v Fonville, [NYLJ, Apr. 19, 1989, at 23, col 4], supra). We conclude that this omission was deliberate and decline to impose the restrictions against profiteering in sublet situations to living arrangements involving roommates (see, Sullivan v Brevard Assoc., 66 NY2d 489) . . . In sum, neither the lease nor any law governing rent-stabilized apartments permit a landlord to evict a tenant for earning a profit from the rent charged a roommate (Schneller v Moed, 128 Misc 2d 885)" (id. at 203-204). Our reading of the statute and the underlying legislative intent could not have been clearer, and that decision is still good law and binding upon us under principles of stare decisis.

Nevertheless the dissent attempts to discount this Court's holding in Roughton-Hester on the ground that it was issued a decade before the enactment of RSC § 2525.7 and "hardly provides a definitive answer as to whether the subsequently-enacted RSC § 2525.7 supports an eviction remedy." However, a fundamental principle of statutory construction is that "[i]n arriving at the legislative intent, the language of an amendment may be construed in the light of previous decisions construing the original act, it being presumed that the Legislature had such judicial construction in mind when adopting the amendment" (McKinney's Cons. Laws of NY, Book 1, Statutes § 191, at 353-354). Nothing could make the legislative mandate clearer than when a court finds that a statute does not have an eviction provision and the Legislature later amends that statute but still omits such a provision. While the Rent Stabilization Code was amended since our decision in Roughton-Hester to prohibit overcharging a roommate, our rationale in limiting evictions for overcharging a roommate to cases where there is specific regulatory authority for such a cause of action "is equally applicable here, if not more so" (see Giachino Enters. L.P. v Inokuchi, 7 Misc 3d 738, 742 [2005]). Moreover, the dissent's suggestion that we affirm the Appellate Term's application of "the rule it has developed through its own common-law jurisprudence since enactment of that provision," not only is legally unsupported, but defies logic in that neither the Appellate Term nor this Court may develop its own "common-law jurisprudence" in an area as thoroughly legislated and highly regulated as the rent stabilization laws in New York City by ignoring the plain language of a statute, its clear legislative intent, and binding case law precedent of this Court applying the statute.

Although this Court subsequently indicated that rent profiteering involving roommates might entitle a landlord to maintain a holdover proceeding against the stabilized tenant (BLF Realty Holding Corp. v Kasher, 299 AD2d 87, 91 [2002], lv dismissed 100 NY2d 535 [2003], citing RAM 1 LLC v Mazzola, 2001 NY Slip Op 50073[U] [App Term, 1st Dept 2001]), as noted by the Appellate Term in 270 Riverside Dr., Inc. v Braun (4 Misc 3d 77 [2004]), that case is both legally and factually distinguishable in that it addressed the interplay between the Loft Law and the Rent Stabilization Law as it concerned a tenant who subdivided and sublet his loft space.

Moreover, the Appellate Term for the Ninth and Tenth Judicial Districts has subsequently noted that "DHCR [the agency charged with enforcement of the Rent Stabilization Code] has taken the position that [section] 2505.8 (b) [of the Emergency Tenant Protection Regulations] and its counterpart in the Rent Stabilization Code (9 NYCRR 2525.7 [b]) were intended to vest a roommate with the right to file a complaint against the tenant and not to create a new cause of action for eviction (see Note, Regulating Roommate Relations: Protection or Attack Against New York City's Tenants, 10 Journal of Law and Policy, 539, 547, 585, n 36 [2002])" (SBR Assoc., LLC v Diederich, 2003 NY Slip Op 51057[U] [2003]).

While the 20-year tenant, who originally moved into commercial space and invested thousands of dollars in improvements in order to gain rent stabilized status, concededly advertised for roommates in the Village Voice and charged them more than their proportional share of the rent, this is not a case like West 148 LLC v Yonke, (11 Misc 3d 40 [2006], lv denied 2006 NY Slip Op 73839[U] [1st Dept 2006]), where the tenant rented a portion of the stabilized apartment at double the regulated rent to a series of guests or "roommates" and described the apartment, in both an Internet listing for "Affordable Hotels" and on her business card, as the "Chez Sylvie Bed and Breakfast" (id. at 41). It is closer to 54 Greene St. Realty Corp. v Shook (8 AD3d 168 [2004], lv denied 4 NY3d 704 [2005]), where the tenant erroneously, but not unreasonably, believed that he was entitled to some compensation for the improvements he made to the former loft space. In any event, to the extent that those cases presuppose a cause of action for eviction by the landlord, they should not be followed.

Concur—Mazzarelli, J.P., Andrias and Sweeny, JJ.

Saxe and Gonzalez, JJ., dissent in a memorandum by Saxe, J., as follows:

The question presented on this appeal is whether Rent Stabilization Code (9 NYCRR) § 2525.7 (b), which prohibits a tenant in a rent-stabilized apartment from charging a roommate more than his or her proportionate share of the legal rent, permits a landlord to evict the tenant when a violation of this provision is established. I would affirm the holding of Appellate Term, First Department, which applied the rule it has developed through its own common-law jurisprudence since enactment of that provision—that the remedy of eviction is permitted where the evidence demonstrates intentional commercial profiteering from roommates by the tenant of record. That is precisely what happened here.

I further observe at the outset that the majority's discussion contains a fundamental inconsistency. On one hand, it supports its conclusion that eviction is improper here by equating respondent's conduct with the benign roommate overcharge in 54 Greene St. Realty Corp. v Shook (8 AD3d 168 [2004], lv denied 4 NY3d 704 [2005]), and distinguishing it from the egregious commercial exploitation justifying the tenant's eviction for a violation of RSC § 2525.7 in West 148 LLC v Yonke (11 Misc 3d 40 [App Term, 1st Dept 2006], lv denied 2006 NY Slip Op 73839[U] [2006]). On the other hand, the majority follows that discussion with the offhand comment that "to the extent that those cases presuppose a cause of action for eviction by the landlord, they should not be followed." This Court cannot properly direct that. Yonke not be followed while at the same time using Yonke to determine whether the facts here are similar enough to render its holding applicable to the present case.

The provision of the Rent Stabilization Code applicable to overcharging roommates, 9 NYCRR 2525.7 (b), was enacted in 2000. Unlike the section's counterpart regarding overcharging subtenants, 9 NYCRR 2525.6, which authorizes both an award of treble damages to the overcharged subtenant (RSC § 2525.6 [b]) and the termination of the lease of the prime tenant (RSC § 2525.6 [f]), the enactment regarding overcharging roommates contains no specific provision for how it may be enforced, or by whom.

Although RSC § 2525.7 contains no enforcement provision, it cannot seriously be suggested that it was intended to stand merely as an empty prohibition with no means of enforcement. Since enactment of the provision, Appellate Term, First Department has considered the issue in several cases and has concluded that RSC § 2525.7 supports a judgment of eviction in appropriate roommate-profiteering cases (see e.g. Roxborough Apts. Corp. v Becker, 11 Misc 3d 99 [App Term, 1st Dept 2006]; West 148 LLC v Yonke, 11 Misc 3d 40 [2006], supra; RAM 1 LLC v Mazzola, 2001 NY Slip Op 50073[U] [App Term, 1st Dept 2001], lv denied 2002 NY App Div LEXIS 6531 [2002]). Indeed, in two of those cases this Court has denied leave to appeal, which, although not a determination on the merits, indicates that we perceived no grave error in the rule enunciated in those cases (see Matter of Marchant v Mead-Morrison Mfg. Co., 252 NY 284, 298 [1929]).

However, this Court has not directly ruled on the issue of whether RSC § 2525.7 supports a judgment of eviction for roommate-profiteering. Our decision in 520 E. 81st St. Assoc. v Roughton-Hester (157 AD2d 199 [1990]), was issued a decade before the enactment...