Gaines v. New York State Div. of Housing and Community Renewal

• Decision Date: 16 October 1997
• Citation: 90 N.Y.2d 545,664 N.Y.S.2d 249,686 N.E.2d 1343
• Parties: , 686 N.E.2d 1343, 1997 N.Y. Slip Op. 8585 In the Matter of Germaine GAINES, Respondent, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 249

664 N.Y.S.2d 249

90 N.Y.2d 545, 686 N.E.2d 1343, 1997

N.Y. Slip Op. 8585

In the Matter of Germaine GAINES, Respondent, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL, Appellant.

Court of Appeals of New York.

Oct. 16, 1997.

Marcia P. Hirsch, Rudolph Rosa Di Sant and Sheldon Melnitsky, New York City, for appellant.

John J. Cox, New York City, for respondent.

Carb, Luria, Cook & Kufeld, L.L.P., New York City (James E. Schwartz, of counsel), The Real Estate Board of New York, Inc., amicus curiae.

OPINION OF THE COURT

LEVINE, Judge.

Petitioner Germaine Gaines commenced this CPLR article 78 proceeding to challenge respondent New York State Division of Housing and Community Renewal's (DHCR) determination that the current landlord of her New York City rent-stabilized apartment was not liable for rent overcharges exacted by Cornelia Associates (Cornelia), a previous owner of the building.

Carryover liability for rent overcharges by predecessor landlords is authorized by a provision in the Rent Stabilization Code directing that, "[f]or overcharge complaints filed or overcharges collected on or after April 1, 1984, a current owner shall be responsible for all overcharge penalties, including penalties based upon overcharges collected by any prior owner " (9 NYCRR 2526.1[f][2] [emphasis supplied] ). The same provision, however, exempts from carryover liability "a current owner who purchases upon [a] judicial sale" (id.). DHCR extended that exemption in this case to the present landlord who was a successor to the purchaser at a judicially ordered sale of the subject property.

Here, petitioner, the tenant of a rent-stabilized apartment located at 279 East Houston Street in Manhattan, filed a rent overcharge complaint with DHCR in 1991. At that time, petitioner's apartment building was owned by Cornelia, a debtor in possession in chapter 11 bankruptcy proceedings (see, 11 U.S.C. §§ 1101-1146). In July 1992, while the rent overcharge matter was still pending before DHCR, the Bankruptcy Court of the Southern District of New York issued an order authorizing and approving a compromise and settlement agreement between Cornelia and Home Savings Bank of America, F.A. (Home Savings), the holder of the mortgage on the property, whereby the property was to be sold to Home Savings free and clear of junior liens and encumbrances. The property was transferred to Home Savings pursuant to that order. In June 1993, the property was sold to the current owner, ACB Realty Corporation (also known as Sassouni Management, Inc.).

Thereafter, DHCR's Rent Administrator determined that petitioner had been overcharged by Cornelia, the debtor in possession, and by the foreclosing creditor, Home Savings. DHCR assessed liability against Cornelia in the amount of $12,147.84, inclusive of treble damages, and against Home Savings in the amount of $1,466.17, noting its purchase at a judicial sale. The Rent Administrator also determined that ACB Realty Corporation, as the current owner, was liable only for the refund of an excess security deposit, incurring no liability to petitioner for rent overcharges collected by the previous owners because of the intervening judicial sale.

On administrative review, the Commissioner of DHCR sustained the Rent Administrator's determination, rejecting petitioner's argument that the current owner should be liable for the entire overcharge because it was not the purchaser at the judicial sale of the property, but a successor purchaser. The Commissioner ruled that the judicial sale exemption in 9 NYCRR 2526.1(f)(2) applies to a current owner who had taken title through a purchaser at a judicially ordered sale.

Petitioner's CPLR article 78 challenge to DHCR's determination not to assess full liability against the current owner was denied by Supreme Court. On appeal, the Appellate Division reversed (230 A.D.2d 631, 646 N.Y.S.2d 106), reasoning that nothing in the regulation at issue dictates the conclusion that the judicial sale exemption should be applied to successor purchasers. The Court noted that successor purchasers are able to apprise themselves of any overcharges and thereby have the opportunity, when purchasing property, to obtain a clause in the contract of sale to protect themselves in the event of overcharge liability. We granted DHCR leave to appeal, and now reverse.

We have repeatedly held that the interpretation given to a regulation by the agency which promulgated it and is responsible for its administration is entitled to deference if that interpretation is not irrational or unreasonable (see, Matter of New York State Assn. of Life Underwriters v. New York State Banking Dept., 83 N.Y.2d 353, 359-360, 610 N.Y.S.2d 470, 632 N.E.2d 876; Matter of Howard v. Wyman, 28 N.Y.2d 434, 437-438, 322 N.Y.S.2d 683, 271 N.E.2d 528, rearg. denied 29 N.Y.2d 749, 326 N.Y.S.2d 1027, 276 N.E.2d 238; see also, Matter of Versailles Realty Co. v. New York State Div. of Hous. & Community Renewal, 76 N.Y.2d 325, 330, 559 N.Y.S.2d 472, 558 N.E.2d 1009, rearg. denied 76 N.Y.2d 890, 561 N.Y.S.2d 551, 562 N.E.2d 876). We conclude that DHCR's interpretation of the judicial sale exemption to include successor purchasers is rational, and consistent with the policies behind both the imposition of carryover liability in general and the judicial sale exemption from such liability.

Carryover liability for rent overcharges had been judicially imposed before the promulgation of 9 NYCRR 2526.1(f)(2) (see, Turner v. Spear, 134 Misc.2d 733, 512 N.Y.S.2d 335; see also, Coulston v. Singer, 86 Misc.2d 1001, 384 N.Y.S.2d 74). The rationale for carryover liability was derived from the requirement of section 42(A) of the former Rent Stabilization Code which mandated that landlords keep and preserve sufficient records to determine the legal rent at all times (see, Matter of Greenthal Co. v. State Div. of Hous. & Community Renewal, 126 Misc.2d 795, 799, 484 N.Y.S.2d 445). Hence, a successor landlord would always be able to ascertain whether the previous owners had been guilty of overcharges and protect itself accordingly (see, Turner v. Spear, supra, at 735-736, 512 N.Y.S.2d 335).

By the same token, a judicially created exemption from carryover liability was applied for landlords whose title derived from a judicial sale where the appropriate rental records were not available. The grounds for this exemption were twofold: (1) that it was inequitable to impose carryover liability in the context of a judicially ordered sale, because the debtor/owner would have no incentive to furnish records to the purchaser; and (2) imposing such liability on judicial sale purchasers would have an adverse impact on marketability in such sales (see, e.g., Matter of Sharon Towers Realty v. New York State Div. of Hous. & Community Renewal, Sup. Ct., Queens County, July 25, 1988, Dunkin, J., index No. 3645/88; Matter of Herman Mgt. v. New York City Conciliation & Appeals Bd., Sup. Ct., N.Y. County, Aug. 16, 1985, Pecora, J., index ...