In re Cohen

• Decision Date: 24 October 1994
• Docket Number: Bankruptcy No. 90-25340. Adv. No. 91-2094.
• Citation: 185 BR 171
• Parties: In re Edward S. COHEN, Debtor. Hilda DE LA CRUZ, Nelfo C. Jimenez, Maria Morales, Gloria Sandoval, Hector Santiago, Santia Santos, Elba Saravia, Elvia Siguenzia, Enilda Tirado, Plaintiffs, v. Edward S. COHEN, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

185 B.R. 171 (1994)

In re Edward S. COHEN, Debtor Hilda DE LA CRUZ, Nelfo C. Jimenez, Maria Morales, Gloria Sandoval, Hector Santiago, Santia Santos, Elba Saravia, Elvia Siguenzia, Enilda Tirado, Plaintiffs, v. Edward S. COHEN, Defendant.

Bankruptcy No. 90-25340. Adv. No. 91-2094.

United States Bankruptcy Court, D. New Jersey.

October 24, 1994.

Hudson County Legal Services Corp. by Gregory G. Diebold, Jersey City, NJ, for plaintiffs.

Monaghan, Rem & Zeller, P.C., by Robert Zeller, Hackensack, NJ, for debtor-defendant.

OPINION

ROSEMARY GAMBARDELLA, Bankruptcy Judge.

On November 12, 1993, the Court conducted a trial in the matter of Hilda De La Cruz et al. v. Edward S. Cohen, Adv. No. 91-2094. The following constitutes the Court's findings of fact and conclusions of law.

FACTS

From October, 1984 until the end of 1990, the debtor, Edward S. Cohen ("Debtor" or "Defendant" or "Cohen") and his father, Nathan Cohen, managed and operated real estate housing. The first building they purchased was a multiple dwelling located at 502 Jefferson Street in Hoboken, New Jersey (the "Jefferson Property"). See Transcript of November 12, 1993 trial (hereinafter "Trans.") p. 47.

At the time Cohen and his father purchased the Jefferson Property, Cohen had no formal education or training regarding the management and ownership of real estate, although he did graduate from high school.¹ Trans. p. 47 and 44. Essentially, any training Cohen obtained came from the actual experience of owning real estate. Trans. p. 48.

In August 1985, Cohen and his father purchased another multiple dwelling property known as 600 Monroe Street, Hoboken, New Jersey (the "Monroe Property"), which they owned until December 1989. Trans. p. 44. In addition to the two Hoboken properties, the Cohens subsequently purchased the following properties: 717 Palisades Avenue, Union City; 34-40 Plum Street, Paterson, NJ; 210 South Street, Jersey City, NJ; 1026 South Orange Avenue, Newark, New Jersey; 14 Beach Street, Paterson, NJ.² Trans. p. 48-50, 64. All of these properties were rental properties occupied at one time or another by tenants. Trans. p. 49.³

It was the Debtor's inability to generate sufficient income to cover the expenses of ownership of all of this property that eventually caused the Debtor to seek relief from the bankruptcy court.⁴ Trans. p. 50. On November 21, 1990, the Debtor filed a petition for relief under chapter 7 of the Bankruptcy Code. Charles M. Forman was appointed Chapter 7 Trustee by the United States Trustee. The Debtor indicated that the liquidation of all of the properties he owned at the time of filing went to pay his creditors and he was left with nothing. Trans. p. 50.

Prior to his bankruptcy, however, the Debtor operated the Monroe property, which had 18 apartment units, as a rental property. A superintendent named "Sandy" managed the property and rented out the apartments. Trans. p. 18.

During the period that the Debtor rented the Monroe property, August 1985 through December 1989, a Rent Control ordinance governed the establishment and increase of any rents in Hoboken. See Hoboken Code § 155 et seq. (Plaintiffs' Exhibit P-1A). Beginning in September 1989, Cohen received notice from the Rent Leveling and Stabilization Board (the "Board") informing him that he was charging certain of his tenants rent in excess of the legal rent for the apartment. See Plaintiffs' Exhs. P-2 through P-7 and P-9 through P-10 (includes copies of Hoboken Rent Leveling Administrators decisions). The Board provided that Cohen overcharged the following tenants: Hilda De La Cruz, Nelfo C. Jimenez, Maria Morales, Gloria Sandoval⁵, Hector Santiago, Santia Santos, Elba Saravia, Elvia Sequenzia, and Enilda Tirado (hereinafter this group of tenants shall be referred to as "Tenants" or "Plaintiffs").

Hilda De La Cruz began renting an apartment at the Monroe Property in March 1988 at a rate of $500 per month.⁶ Trans. p. 16. The Board indicated the legal amount of rent for the apartment was $175 monthly. See Exhibit P-2. She further indicated that she was not aware of a rent control ordinance at the time she rented the apartment. Trans. p. 16. Ms. De La Cruz is originally from Santo Domingo and completed school to a grade level of six. Trans. p. 17.

Elvia Sequenzia moved into an apartment at 600 Monroe Street in April 1988 and paid rent at the monthly rate of $450.⁷ Trans. p. 18-19. The Board provided that the legal rate of rent was $221 monthly. See Exhibit P-9. At the time she moved in, Ms. Sequenzia was not aware that the rent she was paying exceeded the legal limit. Trans. p. 19. Ms. Sequenzia was born in Ecuador and attended school until grade level six. Trans. p. 19-20.

Nelfo Jimenez and his wife moved into an apartment at 600 Monroe Street on December 31, 1987. Trans. p. 21. Jimenez paid rent in the amount of $500 monthly and had no knowledge at the time he moved in that the legal rate of rent was much less. Trans. p. 21. In fact, the Board determined that the legal rate of rent was $221 monthly. See Exhibit P-3. Jimenez emigrated from Santo Domingo and completed school up to grade level six. Trans. p. 22.

In January 1989, Cohen reduced the monthly rent for Mr. Jimenez to $275. Trans. p. 23 Cohen testified that he reduced the rent in return for Mr. Jimenez rendering services as co-superintendent. Trans. p. 58. Mr. Jimenez asserted at trial that Cohen reduced the rent since the Debtor knew that Jimenez went to the rent control Board. Trans. p. 23.

Maria Morales began renting an apartment at the Monroe Property in May 1987 for a monthly rent of $450.⁸ Trans. p. 25. The Board provided that the legal rate of rent for the apartment Ms. Morales rented was $190 monthly. See Exhibit P-4. Ms. Morales testified that she was born in Santo Domingo and completed high school. Trans. p. 25. She further testified that she was not aware that the apartment was subject to rent control at the time she rented it. Trans. p. 25.

Hector Santiago moved into 600 Monroe Street in September 1987 and was not aware of any rent control ordinance.⁹ Trans. p. 26. The Board determined that the legal rate of rent for Mr. Santiago's apartment was $162 monthly, even though he paid $400 a month to Cohen. See Exhibit P-6 and Plaintiff's Proposed Findings ¶ 4. Mr. Santiago emigrated from Santo Domingo and completed school up to the level of grade six. Trans. p. 26.

Enilda Tirado began living at 600 Monroe Street in July 1982.¹⁰ Trans. p. 27. Prior to Cohen's purchase of the property, Ms. Tirado paid monthly rent at a rate of $215. Trans. p. 27. She continued paying $215 a month even after Cohen purchased the property, although the legal rate of rent was only $175 monthly. Trans. p. 28 and Exhibit P-10. Ms. Tirado testified that she did not know anything about rent control when Cohen took over the property. Trans. p. 28. Ms. Tirado was born in Columbia and completed high school. Trans. p. 28.

Santia Santos testified that she moved into 600 Monroe Street in October 1984, although she was not exactly sure of the date.¹¹ Trans. p. 29. She further testified that at the time she moved into the apartment she did not know anything about rent control. Trans. p. 29. Ms. Santos paid monthly rent of $250 the entire time she rented an apartment at 600 Monroe Street notwithstanding that the legal rate of rent was only $156 monthly. See Plaintiff's Proposed Findings ¶ 4 and Exhibit p-7. Originally born in Puerto Rico, Ms. Santos competed school to grade level six. Trans. p. 30.

The final plaintiff, Gloria Sandoval, was not present at trial. Her brother, Raphael Sandoval, did testify and he claims that he is the one who dealt with the superintendent to rent the apartment for himself and his sister.¹² Trans. p. 33. Mr. Sandoval lived with his sister in the apartment, although she was the named tenant. Trans. p. 33. The Sandovals, originally from Ecuador, moved into the apartment in January 1987.¹³ Trans. p. 34-35. Both Gloria and Raphael Sandoval completed school, in Ecuador, to grade level six. Trans. p. 35. Ms. Sandoval paid rent at the rate of $500 per month although the Board provided that the legal rate of rent was $209 monthly. See Plaintiff's Proposed Findings ¶ 4 and Exhibit P-5.

At the time Cohen purchased the property, he was aware of a rent control ordinance. Trans. p. 51 and 68-69. His understanding of the ordinance was that he could not increase rents more than six percent annually for the cost of living for existing tenants, but for new tenants, he believed he could charge fair market value rents. Trans. p. 51-52. Cohen specifically testified that he was "not aware that there was anything in the Rent Control Ordinance that would limit what he could charge if there was a vacancy in the building." Trans. p. 53.

Cohen formulated his understanding of the rent control ordinance from "discussions with other landlords." Trans. p. 52. His understanding, however, was not based on any formal or informal inquiry with the Rent Leveling Board in Hoboken. Trans. p. 53 and 54. Nor did Cohen ever consult with an attorney regarding the rent control ordinance, notwithstanding that he was represented by counsel at the time he purchased the Monroe Property. Trans. p. 53-54 and 72-73. Moreover, Cohen testified that he never obtained a copy of the Rent Control ordinance. Trans. p. 72.

Although Cohen never made a formal investigation of the Rent Control Ordinance with respect to the amount of rent he could charge a new tenant, he did inquire about surcharging tenants for water bills and increased taxes. Trans. p. 69-72. Apparently, in 1986 and again in 1988, taxes and water charges in Hoboken increased significantly. Trans. p. 70. Cohen was advised by other landlords that rent control could provide some relief for the increased costs. Trans. p. 70 and 71. Cohen was successful in learning that he could surcharge his tenants for increased water bills and taxes, but he testified that it never...