MATTER OF GILMAN v. DHCR

• Decision Date: 21 November 2002
• Citation: 99 N.Y.2d 144,753 N.Y.S.2d 1,782 N.E.2d 1137
• Parties: In the Matter of ANNE GILMAN, Appellant, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

99 N.Y.2d 144

782 N.E.2d 1137

753 N.Y.S.2d 1

In the Matter of ANNE GILMAN, Appellant, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL et al., Respondents.

Court of Appeals of the State of New York.

Argued October 8, 2002.

Decided November 21, 2002.

Robert E. Levy, New York City, for appellant.

Sheldon Melnitsky, New York City, Marcia P. Hirsch and Nava Listokin for New York State Division of Housing and Community Renewal, respondent.

Chief Judge KAYE and Judges SMITH and CIPARICK concur with Judge WESLEY; Judge GRAFFEO dissents and votes to affirm in a separate opinion in which Judges LEVINE and ROSENBLATT concur.

OPINION OF THE COURT

WESLEY, J.

In this proceeding brought by petitioner tenant to determine the proper initial rent for her rent-stabilized apartment, the Division of Housing and Community Renewal (DHCR) overturned the Rent Administrator's determination and set a higher initial rent based on data first submitted by the owner on appeal nearly a full decade after the tenant commenced her proceeding. We conclude that at that stage DHCR should not have accepted the owner's evidence without any showing of good cause.

In 1990, Anne Gilman moved into an apartment previously subject to rent control and exercised her right to seek readjustment of the $2,095 stabilized rent by commencing a fair market rent appeal (FMRA). For no apparent reason, it took two years before DHCR notified the building owner of Gilman's pending FMRA. Thereafter, the owner requested a FMRA answering package and indicated its intention to file comparability data—proof of rents for similar apartments.

DHCR inexplicably failed to send the forms until Gilman filed a CPLR article 78 mandamus proceeding to compel the agency to resolve her FMRA.¹ Faced with the mandamus proceeding, on April 4, 1994, DHCR provided the owner an answering package with a notice of clarification attached. The notice explained that the owner could submit comparability data for use in determining the apartment's fair market rent. If the owner failed to submit the data, the Rent Administrator would be required to calculate the fair market rent based solely on a rent guidelines formula (see Matter of Ullman Estates v New York City Conciliation & Appeals Bd., 97 AD2d 296, 298 [1st Dept 1983], affd 62 NY2d 758 [1984]). The notice also explained that when an owner submitted rents from other rental units, they had to be "legal rents." To establish "legal rents" for comparable rent-stabilized apartments, the owner had to show that notice of the stabilized rent "was served on the first rent stabilized tenant"² and that the notice "was not challenged within ninety (90) days of receipt thereof * * *."³ Even though DHCR granted the owner an extension of time to gather the proper documentation, the owner submitted no comparability data.

On July 22, 1994, the Rent Administrator issued an order setting the initial legal regulated rent, based solely on the guidelines, at approximately $1,000 per month less than the amount originally charged by the owner. The owner then timely filed a petition for administrative review (PAR) of the Rent Administrator's decision. The owner objected to DHCR's refusal to grant more time to obtain the proper documentation, but did not seek to have those documents included in the appellate record. It also never indicated that the documents did not exist. Gilman opposed the PAR and objected to the introduction of any new evidence.

Nothing happened in the PAR proceeding for five years. In June 1999, DHCR notified the owner that as a result of the Rent Regulation Reform Act (RRRA) of 1997, it had a final opportunity to submit comparability data. Within 20 days, the owner submitted a list of rents for several apartments in its building together with the leases for those apartments. DHCR then notified Gilman on July 9, 1999 that the owner had submitted comparability data "in accordance with the Rent Regulation Reform Act of 1997 applicable to all pending cases" and provided her an opportunity to comment. In a pro se submission, Gilman answered the notice and contested the introduction of the new data. She argued that new evidence could not be submitted for the first time at the PAR level and claimed that the "failure to submit rent records previously was inexcusable given that the records were in Landlord's control at all times. * * * There is no valid excuse for Landlord to have failed to provide this information until seven years after Landlord received the FMRA from the DHCR and five years after the initial determination of the FMRA."

DHCR's Deputy Commissioner ruled that the new data "submitted by the owner pursuant to the Rent Regulation Reform Act of 1997 must be reflected in the determination of the fair market rent," and he calculated a new rent for the apartment based on that data. The newly adjusted rent resulted in Gilman owing the owner over $47,000 for back rent. Gilman commenced this CPLR article 78 proceeding to annul DHCR's determination, arguing that the RRRA of 1997 did not affect the regulations governing FMRAs or PARs. Supreme Court granted Gilman's petition, but the Appellate Division reversed with two Justices dissenting. On appeal, Gilman asserts that DHCR erred when it determined that the RRRA of 1997 affected the proof requirements for comparability data in a FMRA and that the agency was precluded from considering the owner's comparability data at the PAR level. Because the DHCR regulations require a showing of good cause to introduce new evidence at the PAR level, and no such showing was made in this case, we conclude that DHCR's determination should be annulled and a new hearing held.

In reviewing an administrative agency determination, we must ascertain whether there is a rational basis for the action in question or whether it is arbitrary and capricious (see e.g. Matter of Nehorayoff v Mills, 95 NY2d 671, 675 [2001]). We conclude that the RRRA of 1997 is applicable to FMRAs. Although the legislation amended that section of the Rent Stabilization Law (§ 26-516) dealing with overcharge complaints, a FMRA is a procedural vehicle for a tenant to claim an overcharge in the initial stabilized rent. Furthermore, the overcharge complaint provisions of the statute do affect "initial legal regulated rents" which tenants seek to readjust in FMRAs (see Rent Stabilization Code § 2522.3; Matter of Muller v New York State Div. of Hous. & Community Renewal, 263 AD2d 296, 302-303 [1st Dept 2000], lv denied 95 NY2d 763 [2000]). Thus, when reading the statute as a whole, the RRRA of 1997 does apply to FMRAs.

The RRRA clarified and reinforced the four-year statute of limitations in rent overcharge claims and limited "examination of the rental history of the housing accommodation prior to the four-year period preceding the filing of a complaint" (see L 1997, ch 116, § 33). DHCR rationally concluded that the statute also, in effect, eased the legal sufficiency requirements for comparability data by removing the strict proof of notice requirements as a collateral issue in identifying comparables in rent overcharge claims and fair market rent appeals. The legislation was designed to alleviate the burden on owners to retain that paperwork indefinitely. The four-year rule simplified the process (see Governor's Mem approving L 1997, ch 116, 1997 McKinney's Session Laws of NY, at 1923 ["A number of regulatory reforms are included in the legislation to simplify the administration of rent laws while protecting the rights of tenants and owners"]).

The Legislature specifically directed that the RRRA of 1997 apply to all cases pending before the DHCR. The agency acted rationally when it informed owners of the new legislation and its effect on comparability data. The new statute, however, said nothing about the wholesale introduction of new evidence at the appellate level.

In this case, DHCR acted irrationally in allowing new comparability data at the PAR level without any showing that this owner could not have earlier provided that information. We agree with the dissenters at the Appellate Division that DHCR's decision to reopen the record and accept new comparability data at the appellate level was contrary to DHCR's rules governing PAR proceedings (see Matter of Gilman v New York State Div. of Hous. & Community Renewal, 290 AD2d 280, 283-287

[1st Dept 2002] [Rubin, J., dissenting]).

The acceptance of new evidence on appeal is generally contrary to appellate practice simply because it is unfair to allow a party, on appeal, to rewrite the factual record in the proceeding. Consistent with this principle, when conducting a PAR, DHCR is limited to the facts and evidence before the rent administrator as raised in the petition (see 9 NYCRR 2529.6). New facts can be admitted only in narrow circumstances— where "petitioner submits with the petition certain facts or evidence which he or she establishes could not reasonably have been offered or included in the proceeding prior" (id. [emphasis added]). When the petitioner establishes good cause to consider the new evidence, DHCR may remand the matter for redetermination to allow the rent administrator to consider the new evidence (see id.). This Court also has recognized that similar good cause provisions in the Rent Stabilization Code "permit DHCR to accept late filings for good cause shown at `any stage of a proceeding'—that is, at any point before the Commissioner has entered a final order" (Matter of Dworman v New York State Div. of Hous. & Community Renewal, 94 NY2d 359, 374-375 [1999]; see also Pledge v New York State Div. of Hous. & Community Renewal, 257 AD2d 391

[1st Dept 1999], affd 94 NY2d 851 [1999]).

At oral argument, DHCR argued that the data submitted in 1999 could not have been accepted by the Rent Administrator in 1994, and thus that good cause was established for receipt of the comparables. That argument falls short. Clearly, the data submitted in 1999 would not...