Independence Plaza North Tenants' Ass'n v. Independence Plaza Associates, L.P.

• Decision Date: 30 August 2010
• Citation: 29 Misc.3d 868,907 N.Y.S.2d 611
• Parties: INDEPENDENCE PLAZA NORTH TENANTS' ASS'N, et al., Plaintiff, v. INDEPENDENCE PLAZA ASSOCIATES, L.P., et al., Defendants. John R. Denza, et al., Plaintiff, v. Independence Plaza Associates, L.P., et al., Defendants.
• Court: New York Supreme Court

907 N.Y.S.2d 611

29 Misc.3d 868

INDEPENDENCE PLAZA NORTH TENANTS' ASS'N, et al., Plaintiff,

v.INDEPENDENCE PLAZA ASSOCIATES, L.P., et al., Defendants.

John R. Denza, et al., Plaintiff,

v.Independence Plaza Associates, L.P., et al., Defendants.

Supreme Court, New York County, New York.

Aug. 30, 2010.

Seth A. Miller, Esq. and Stephen Dobkin, Esq., Collins Dobkin & Miller, LLP, New York, for Plaintiffs in both actions.

Stephen B. Meister, Esq. and Stacey M. Ashby, Esq., Meister Seelig & Fein LLP, New York, for Defendants in both actions.

MARCY S. FRIEDMAN, J.

In these declaratory judgment actions, plaintiffs seek a determination that they are rent stabilized tenants of Independence Plaza North (IPN), a former Mitchell Lama complex in lower Manhattan. In the Independence Plaza North Tenants' Association action ( IPN action), plaintiffs are tenants who were in possession ofapartments at IPN as of June 28, 2004, the date on which IPN exited the Mitchell Lama program (exit date). In the Denza action, plaintiffs are tenants who entered into possession of apartments at IPN, under "free market" leases, after the exit date but while IPN was receiving J-51 benefits. Plaintiffs in both actions contend that their units are subject to the Rent Stabilization Law based on IPN's receipt of the J-51 benefits. Defendant-owners contend that the City retroactively terminated the benefits as of the exit date, and that plaintiffs' units never became subject to rent stabilization after IPN's exit from the Mitchell Lama program.

Procedural History

By decision dated September 26, 2007, this court denied defendants' motion for summary judgment, without prejudice to renewal after completion of discovery regarding the circumstances under which IPN received J-51 benefits after the exit date and such benefits were terminated. The Denza plaintiffs subsequently moved to remand the matter to the New York State Division of Housing and Community Renewal (DHCR) for a determination of their rent stabilized status. Defendants moved for summary judgment dismissing the complaint, and plaintiffs cross-moved for a declaration, in the event of denial of their remand motion, that their apartments are rent stabilized. These motions were decided by decision dated April 3, 2009 (remand decision). This decision stayed the parties' summary judgment motions pending remand to the DHCR. By stipulation dated April 23, 2009, the parties agreed to remand the IPN action to the DHCR for determination of the rent stabilization issue "under [the] same terms as [the] remand order" in the Denza action. By determination dated March 5, 2010, the DHCR held that IPN "is not subject to the Rent Stabilization Law and Code." (DHCR Determination at 7.)

In the Denza action, defendants now move to lift the stay of the action that was imposed pending the DHCR remand and for summary judgment dismissing plaintiffs' complaint, based on the DHCR determination. Plaintiffs cross-move for summary judgment declaring that their apartments are rent stabilized. In the IPN action, plaintiffs move for partial summary judgment declaring that their apartments are rent stabilized, and defendantsmove to stay the IPN action pending determination of the Denza action.¹

As discussed at greater length in the remand decision, the following material facts are undisputed: IPN, a complex containing 1331 residential units, was constructed after January 1, 1974 and was rent regulated under the Mitchell Lama program, pursuant to Article 2 of the New York State Private Housing Finance Law (PHFL).² In 1998, while IPN was rent regulated under the PHFL, it began to receive a J-51 tax abatement based on a qualifying major capital improvement. After 20 years, IPN exercised its option, pursuant to PHFL § 35(2), to dissolve and exit the Mitchell Lama program. J-51 abatements were initially granted in tax year 1998/1999, and continued to be granted, after IPN's June 28, 2004 exit from the Mitchell Lama program, through tax year 2005/2006. In March 2006, the Department of Housing Preservation & Development (HPD) terminated the J-51 benefits effective as of the exit date, and defendants repaid all of the benefits received between the exit date and the retroactive termination.³ The parties dispute whether the receipt of these benefits made plaintiffs' apartments subject to the Rent Stabilization Law.

Remand

As a threshold matter, the court holds that it is not bound by, and declines to follow, the DHCR's remand determination. Itis well settled that "[a]n administrative agency's interpretation of the statute it is charged with implementing is entitled to varying degrees of judicial deference depending upon the extent to which the interpretation relies upon the special competence the agency is presumed to have developed in its administration of the statute." ( Matter of Rosen v. Public Empl. Relations Bd., 72 N.Y.2d 42, 47, 530 N.Y.S.2d 534, 526 N.E.2d 25 [1988].) " [W]here specialized knowledge and understanding of underlying operational practices or ... an evaluation of factual data and inferences to be drawn therefrom is at stake ... [the court] should defer to the administrative agency's interpretation unless irrational or unreasonable." ( Roberts v. Tishman Speyer Props., L.P., 13 N.Y.3d 270, 285, 890 N.Y.S.2d 388, 918 N.E.2d 900 [2009] [internal quotation marks and citations omitted]; Kurcsics v. Merchants Mut. Ins. Co., 49 N.Y.2d 451, 459, 426 N.Y.S.2d 454, 403 N.E.2d 159 [1980].) In contrast, "where the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency and its interpretive regulations."

( Roberts, 13 N.Y.3d at 285, 890 N.Y.S.2d 388, 918 N.E.2d 900, quoting Kurcsics, 49 N.Y.2d at 459, 426 N.Y.S.2d 454, 403 N.E.2d 159.)

In remanding the issue of plaintiffs' rent stabilization status to the DHCR, this court reasoned that the Rent Stabilization Law does not explicitly address whether apartments in a building which, like IPN, qualified for J-51 benefits because it was regulated as a Mitchell Lama project under the PHFL, become rent stabilized if the building continues to receive the same J-51 benefits after the building exits the Mitchell Lama program. (April 3, 2009 Decision at 7.) The court also reasoned that a central issue in this case is whether 28 RCNY § 5-07(f)(3), the regulation that implements the J-51 program, should be interpreted as mandating termination of J-51 benefits upon termination of the PHFL regulation. The court found that HPD did not cite § 5-07(f)(3) as the basis for the termination, and did not otherwise take the position that the J-51 benefits terminated by operation of law, or that the regulatory framework mandated termination of the J-51 benefits upon IPN's exit from the Mitchell Lama program. The court found, rather, that the evidence on the remand summary judgment motions "unequivocally confirm[ed] that HPD treated the termination of the benefits as a discretionary act, and not as a mere ministerial act to correct the inadvertent continuation" of J-51 benefits after IPN's exit date. ( Id. at 4.) Thecourt also cited apparent inconsistencies in HPD's position as to whether post-1974 Mitchell-Lama projects are subject to the Rent Stabilization Law upon exiting the Mitchell Lama program, as a result of receipt of J-51 benefits at the time of exit. ( Id. at 5.) Having found that HPD exercised discretion in terminating IPN's J-51 benefits, the court held that there was a further issue, within the expertise of the DHCR, as to whether defendants waived the J-51 benefits in an impermissible attempt to avoid rent stabilization coverage. ( Id. at 5-6.) In directing the remand, the court noted that important issues as to the rent stabilization status of former Mitchell Lama projects are now arising as the projects are " aging out" or qualifying to opt out of the PHFL regulation, and that the DHCR, as the administrator for dissolving Mitchell Lama projects, has knowledge of, and experience with, the operational practices that have been followed for registration under the Rent Stabilization Law of former Mitchell Lama projects. The court accordingly concluded that it should have the benefit of the DHCR's interpretation of the statute it administers before deciding the parties' summary judgment motions. ( Id. at 7-8.)

On the remand, however, the DHCR did not draw upon its expertise to reach the merits of plaintiffs' claim of rent stabilization status. Rather, the DHCR held that HPD, as the agency that administers the J-51 program, had terminated the J-51 benefits for the complex effective as of the exit date. It further found that HPD's determination must be afforded a "presumption of regularity" and was "controlling" upon the DHCR. (DHCR Determination at 6.) The DHCR reasoned:

"In view of the fact that HPD terminated the J-51 tax abatement effective as of the dissolution date as part of the dissolution, the complex was not effectively receiving benefits subsequent to leaving Mitchell Lama regulation and, therefore, RSL 26-504(c) would not be applicable. Thus, IPN is not subject to the Rent Stabilization Law and Code. Since IPN did not become subject to rent stabilization in the first place, 28 RCNY 5.03(f)(3), the provision of HPD's J-51 regulation that mandates continued rent regulation when J-51 benefits are revoked or waived would accordingly not be applicable to this matter, since accordingto HPD the benefits never attached after dissolution."

(DHCR Determination at 6.)

The DHCR thus in effect declined this court's request that it use its special expertise to interpret the statute it administers, and merely deferred to HPD's determination retroactively terminating the J-51 benefits. The DHCR neither interpreted and applied the Rent Stabilization Law nor discussed operational practices with other post-1974 developments that were receiving J-51...