Nezry v. Haven Ave. Owner LLC

• Decision Date: 09 July 2010
• Docket Number: No. 150023/10.,150023/10.
• Parties: Gil NEZRY and Elias Garcia, individually and on behalf of a class of persons similarly situated, Plaintiffs, v. HAVEN AVENUE OWNER LLC and John Does No. 1–10, Jointly and Severally, Defendants.
• Court: New York Supreme Court

28 Misc.3d 1226

958 N.Y.S.2d 62

2010 N.Y. Slip Op. 51506

Gil NEZRY and Elias Garcia, individually and on behalf of a class of persons similarly situated, Plaintiffs,

v.HAVEN AVENUE OWNER LLC and John Does No. 1–10, Jointly and Severally, Defendants.

No. 150023/10.

Supreme Court, New York County, New York.

July 9, 2010.

OPINION TEXT STARTS HERECAROL R. EDMEAD, J.

Defendants Haven Avenue Owner, LLC (“Owner”) and John Does # 1–10 (the “Doe Defendants”) (collectively, the “defendants”) move to dismiss the Complaint of the plaintiffs Gil Nezry and Elias Garcia (“plaintiffs”) pursuant to CPLR 3211 and the doctrine of primary jurisdiction. In the alternative, defendants seek a stay of these proceedings pursuant to CPLR 2201, pending the resolution of plaintiffs' administrative proceedings by the New York State Division of Housing and Community Renewal (“DHCR”), and/or pursuant to CPLR 3211(a)(7), dismissal of the third, fourth and fifth causes of action for failure to state a cause of action, dismissal of the Complaint in its entirety as against the Doe Defendants, and to strike plaintiffs' jury demand in the event the Court does not dismiss the Complaint in its entirety.

Factual Background

Plaintiffs are residential tenants in the building located at 227 Haven Avenue in New York, New York (the “Building”) pursuant to a 2008 lease with the Owner. Plaintiffs commenced this action on behalf of “themselves and all others similarly situated” who have been and continue to be charged market rate rents for their rental units, although they were and are entitled to pay considerably lower rent stabilized rents as set forth in the Court of Appeals' decision in Roberts v. Tishman Speyer Props., L.P. (13 NY3d 270, 890 N.Y.S.2d 388 [2009] ) (“ Roberts ”). In Roberts, the Court held that during the period in which an owner receives real estate tax benefits under New York City's J–51 property tax abatement/exemption program, all of the units shall remain subject to the Rent Stabilization Law (“RSL”). Plaintiffs allege that since 2001, the Owner unlawfully charged plaintiffs market rents in excess of rent stabilization rent levels while collecting benefits under the J–51 program. ¹

Plaintiffs seek damages and attorneys' fees for the rent overcharges collected by the Owner (first cause of action), and a declaration that the units in the Building are subject to rent stabilization, that defendants are required to charge rent at rent stabilized rates instead of market rates, and “that their apartments will continue to be subject to [RSL] for the entire period during which Defendants receive J–51 ... and until such time [in or about 2021] as said apartments may thereafter properly be deregulated ...” (second cause of action). Plaintiffs also claim that defendants breached plaintiffs' leases by charging market rents prohibited by law and for failing to include a rider mandated by the RSL (third cause of action) and violated the General Business Law (“GBL”) § 349 (fourth cause of action). Plaintiffs also claim unjust enrichment (fifth cause of action).

In support of dismissal of the first and second causes of action, or a stay of this action, defendants argue that plaintiffs failed to exhaust their administrative remedies before DHCR, which is vested with authority and possesses the experience and technical expertise to determine disputes over the RSL and complex rent regulation-related issues. The Court should stay or dismiss the litigation pursuant to the doctrine of primary jurisdiction, since the subject matter of this litigation is particularly within the area of DHCR's expertise. Otherwise, the Court would have to decide questions that DHCR routinely determines, including whether the 13 apartments at issue are subject to the RSL, the amount of rent that may be charged for such apartments, and whether there were any overcharges for each apartment. To resolve plaintiffs' claims, the Court would have to compute the allowable rent under the RSL for each year and for each apartment, had the apartment not been decontrolled, which is particularly within DHCR's expertise.

Defendants maintain that the doctrine of primary jurisdiction generally enjoins courts having concurrent jurisdiction to refrain from adjudicating disputes within an administrative agency's authority, particularly where the agency's specialized experience and technical expertise is involved. Under this doctrine, “a court normally should not act upon subject matter within an administrative agency's specialized field without taking into account what the agency has to offer.” Courts often refrain from adjudicating matters within an administrative agency's area of expertise, or at least find that judicial intervention should await the agency's determination.

And, judicial economy is fostered by avoiding potential inconsistent, duplicative determinations in similar disputes that could result in needless motion practice and appeals, and by preventing the use of judicial resources over matters that are more easily addressed administratively.

Defendants point out that the Roberts majority acknowledged the existence of many “issues yet to be decided, including retroactivity, class certification, the statute of limitations, and other defenses that may be applicable to particular tenants.” Resolution of the issue as to whether its interpretation of the statute would be applied retroactively will determine whether landlords will suffer an unwarranted penalty for their good faith past reliance on DHCR and, similarly, whether tenants will enjoy huge financial windfalls for their landlords' purportedly “willful” rent “overcharges.” Other issues that the Roberts Court left open include the preclusive effect of prior decisions and determinations of DHCR and the Courts with respect to the apartments at issue, whether such decisions are still “good law,” and the application of the statute of limitations. DHCR can address and determine these critical questions by issuing new regulations to fill in the gaps in the Roberts decision. Otherwise, the Court will need to resolve questions on a unit by unit basis concerning the legal rent for the apartment, including application of the four year statute of limitations for rent overcharge complaints, the effect of improvements made to each unit, the effect of Major Capital Improvement (“MCI”) orders issued during the period in question, the effect of non-registration of each apartment, if any, and whether plaintiffs were offered 2–year leases, as required by the RSL. Thus, DHCR should resolve plaintiffs' first and second causes of action.

The third cause of action alleging breach of contract should be also be dismissed as defendants did not breach any contract with plaintiffs, and plaintiffs have failed to allege a specific contractual provision that defendants breached. Plaintiffs are simply unhappy that they entered into their leases. Plaintiffs cannot “undo” their leases and compel the Owner to issue rent stabilized leases.

Plaintiffs' fourth cause of action alleging violation of GBL § 349, a statute that prohibits misleading or deceptive commercial activity aimed at the public at large, should be dismissed. The only “consumer-oriented conduct” that plaintiffs can allege is defendants' reliance on long-accepted industry practice concerning the deregulation of rent stabilized apartments pursuant to guidance from DHCR. Such reliance by DHCR in deregulating the apartments cannot in any way be considered deceptive or misleading. Moreover, caselaw expressly holds that GBL § 349 does not apply to private landlord-tenant disputes such as this one.

Plaintiffs' claim that defendants were unjustly enriched by deregulating apartments and executing free market leases (fifth cause of action) should also be dismissed. This quasi-contractual claim is inapplicable since a written lease is the source of the parties' dispute.

Defendants also argue that the Complaint fails to state a cause of action against the Doe Defendants because plaintiffs failed to allege any “corporate domination” by the Doe Defendants, nor any tortious conduct committed by any of the defendants.

Defendants also contend that should the Court decline to dismiss the Complaint in its entirety, the Court should enforce Article 27 of plaintiffs' lease, entitled “Waiver of Trial by Jury and Counterclaim,” in the parties' lease waiving the right to a jury trial, and strike plaintiffs' improper jury demand. A party waives the right to a jury trial if it seeks equitable relief, and plaintiffs seeks the equitable reliefs of a declaratory judgment (second cause of action), and unjust enrichment (fifth cause of action). And, joining claims for legal and equitable relief constitutes a waiver of the right to demand a jury trial as a matter of law.

In opposition, plaintiffs argue this Court is the only forum to resolve the issues presented before a meaningful measure of damages, such as (1) the propriety of a class action, pursuant to Article 9 of the CPLR; (2) whether Roberts should be applied retroactively; (3) which statute of limitations applies; (4) resolution of a conflict between the DHCR and HPD and (5) the determination of rent overcharges, which Justice Lucy Billings, referring to a virtually identical motion before this court, described as “classically a judicial determination.” Additionally, an almost identical case is presently before the Honorable Judith J. Gische in Borden v. 400 East 55th Street Associates, L.P., Index No. 650361/2009 and an identical motion as the instant motion was brought by the Owner's attorneys, the same ones as in the instant case, Rosenberg & Estis.²

Even if the DHCR addresses plaintiffs' claims, all other affected co-tenants would still be without redress unless they brought their own independent actions. Further, courts are the final authorities on issues of statutory construction on issues of retroactivity and statute of limitations, and in such matters, need not...