Portojtno Realty Corp. v. N.Y. State Div. of Hous. & Cmty. Renewal & Darryl C. Towns

2014 NY Slip Op 33036(U)

PORTOJTNO REALTY CORP., PROMETHEUS REALTY CORP., SYLVAN TERRACE REALTY LLC,WINDSOR REALTY LLC, UNICORN 151 CORP., TUSCAN REALTY CORP., 90 STATE STREET ASSOCIATES, INC.,274 HENRY ASSOCIATES, INC., 141 WADSWORTH, LLC, RENT STABILIZATION ASSOCIATION OF N. Y.C, INC.,COMMUNITY HOUSING IMPROVEMENT PROGRAM, INC.,and THE SMALL PROPERTY OWNERS OF NEW YORK, INC., Plaintiffs,andAPARTMENT OWNERS ADVISORY COUNCIL, ADVISORY COUNCIL OF MANAGING AGENTS,THE BUILDING AND REALTY INSTITUTE OF WESTCHESTER & THE MID-HUDSON REGION,STEPPING STONES ASSOCIATES, L.P., and DEROSA BUILDERS INC., Intervenor-Plaintiffs, v. NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWALand DARRYL C. TOWNS, as Commissioner of the NEW YORK STATE HOMES AND COMMUNITY RENEWALand THE DIVISION OF HOUSING AND COMMUNITY RENEWAL,Defendants,andMAKE THE ROAD NEW YORK, NEW YORK STATE TENANTS AND NEIGHBORS, and THE ASSOCIATION FOR NEIGHBORHOOD HOUSING AND DEVELOPMENT, Intervenor-Defendants.

Index No. 501554/2014 (NYSCEF)

New York Supreme Court

October 27, 2014

Filed: December 1, 2014

RECEIVED: December 2, 2014

December 4, 2014

NYSCEF DOC. NO. 118

At an IAS Term, Part 66 of the Supreme Court of the State of New York, held in and for the County of Kings, at the Courthouse, at Civic Center. Brooklyn, New York, on the 27^th day of October, 2014.

PRESENT: HON. RICHARD VELASQUEZ, Justice.

DECISION AND ORDER

Mot. Seq. No. 1 and 3

The following e-filed papers read herein:

NYSCEF No.

Notice of Motion/Order to Show Cause/Cross Motion

Affidavits (Affirmations) Annexed

3-53, 91-92, 94-96

Opposing and Reply Affidavits (Affirmations)

73, 86-90

Memoranda of Law

55, 85, 93, 103

Letter Submissions to the Court

104-107, 111, 113

After oral argument and a review of the aforementioned submissions, the Court finds as follows. Plaintiffs Portofino Realty Corp., Prometheus Realty Corp., Sylvan Terrace Realty LLC, Windsor Realty LLC, Unicorn 151 Corp., Tuscan Realty Corp., 90 State Street Associates, Inc., 274 Henry Associates, Inc., and 141 Wadsworth, LLC are owners of various residential buildings in New York City. Plaintiffs Rent Stabilization Association of N.Y.C., Inc., Community Housing Improvement Program, Inc., and Small Property Owners of New York, Inc. are non-profit organizations, whose members are owners and managers of rent-stabilized properties throughout New York City. Defendants are the New York State Division of Housing and Community Renewal (the Division) and the Commissioner of the New York State Homes and Community Renewal, which includes the Division. In this action, plaintiffs challenge defendants' (1) adoption of the amendments, effective Jan. 8, 2014, to the New York City Rent Stabilization Code (the 2014 amendments),¹(2) establishment of a Tenant Protection Unit within the Division, and (3) use of the Tenant Protection Unit to investigate rent increases and issue determinations.

In Seq. No. 1, plaintiffs move (1) for a preliminary injunction enjoining defendants from enforcing the 2014 amendments and further enjoining the Tenant Protection Unit from auditing the owners of rent-stabilized properties and issuing determination letters, and (2) for limited, expedited discovery. Defendants oppose and, in Seq. No. 3, cross-move for an order, pursuant to CPLR 3211 (a) (1), dismissing the complaint on the sole ground that this action is barred by documentary evidence. Intervenor plaintiffs and intervenor defendants support their parties' respective applications.²

Background

Rent stabilization in New York City is governed by the Rent Stabilization Law of 1969 (Administrative Code § 26-501 et seq.) (RSL). It was enacted (1) to remedy "an acute shortage of dwellings which creates a special hardship to persons and families occupying rental housing," (2) to "prevent exactions of unjust, unreasonable and oppressive rents and rental agreements," as well as of "speculative, unwarranted and abnormal increases in rents," and (3) to "forestall profiteering, speculation and other disruptive practices tending to produce threats to the public health, safety and general welfare. . . " (RSL 26-501). The RSL "represent[s] a pragmatic balance between affording the owners of properties adequateperiodic rent increases to enable them to properly maintain their properties in the face of rising costs, while at the same time affording to tenants an assurance against unreasonable escalations in rent and also various other rights and protections" (Matter of Avon Furniture Leasing, Inc. v Popolizio, 116 AD2d 280, 283-284 [1^st Dept 1986], appeal denied 68 NY2d 610 [1986]).

Under the Omnibus Housing Act of 1983 (L 1983, ch 403), all functions and responsibilities of administering and implementing the rent-stabilization program were delegated to the State in the guise of the Division (see Matter of London Terrace Assoc., L.P. v DHCR, 35 Misc 3d 525, 572 [Sup Ct, NY County 2012]). Pursuant to this authorization, the Division promulgates, amends, and enforces the New York City Rent Stabilization Code (9 NYCRR § 2520.1 et seq.) (RSC). The RSC "provides safeguards against unreasonably high rent increases and, in general, protects tenants and the public interest," as well as requires owners "not to exceed the level of lawful rents as provided by [the RSL]" (RSL 26-511 [c][1]-[2]).

The Legislature has granted the Division broad authority to enforce the RSL. The Division is empowered, among other things, "to administer oaths, issue subpoenas, conduct investigations, make inspections and designate officers to hear and report" (RSL 26-516 [f]). The Division may take action on its own initiative to penalize owners who collect rent overcharges from their tenants (see RSL 26-516 [a]). The Division may commence proceedings in Supreme Court to enjoin violations of the RSL, the RSC, or orders issuedpursuant thereto (see RSL § 26-516 [e]). "In addition to issuing the specific orders provided for by other provisions of [the RSL], the [Division] . . . [is] empowered to enforce [the RSL] and the [RSC] by issuing, upon notice and a reasonable opportunity for the affected party to be heard, such other orders as it may deem appropriate" (RSL 26-156 [b]).

The Rent Act of 2011 (L 2011, ch. 97), effective June 24, 2011, added further protections for tenants, including a limit on the maximum allowable rent increase based on apartment improvements, a limit on the annual vacancy rent increases, and a change in the monetary thresholds for apartment deregulation.³ The Rent Act of 2011 requires (in § 44) that the Division "promulgate rules and regulations to implement and enforce all provisions of this act and any law renewed or continued by this act."

On Feb. 17, 2012, Governor Andrew M. Cuomo announced the appointment of a deputy commissioner to lead the new Tenant Protection Unit at the Division.⁴ According to the press release issued by the Governor's Office:

"'In 2011, we passed the greatest strengthening of the state's rent laws in forty years, and today we are taking the next step to protect tenants by appointing Deputy Commissioner White,' Governor Cuomo said. 'Our new Tenant Protection Unit will proactively prevent problems and root out fraud that can wreak havoc in the lives of rent-regulated residents. With his deep background in both law enforcement and real estate law, Deputy Commissioner White is just the person our state needs for this crucial new position.'"⁵

On Jan. 9, 2014, following several years of comments and drafts, the Division promulgated the 2014 amendments to address the changes made by the Rent Act of 2011. In addition, the Division, by way of the 2014 amendments, further revised the RSC "[t]o address scenarios that its decades of experience administering the rent stabilization laws had revealed were rife with risks of fraud and abuse" (Defendants' Opening Brief at 14). As is relevant to plaintiffs' motion, the 2014 amendments:

• codify the Tenant Protection Unit (see RSC 2520 [o]); • incorporate case law exceptions to the four-year statute of limitations for reviewing rent records (see RSC 2526.1 [a] [2] [iii] - [viii], 2521.2 [c], and 2526.1 [a] [2] [ix]);

• expand the sources of information the Division may consider in determining whether the premises contain current, immediately hazardous violations of law that relate to the maintenance of legally required services (see RSC 2522.4 [a] [13])

• preclude landlords from collecting rent increases on account of vacancies or major capital improvements for as long as rent-reduction orders are in effect (see RSC 2523.4 [a] [1] - [2]);

• eliminate a requirement that tenants provide their landlords with prior notice of service interruptions before complaining to the Division (see RSC 2523.4 [c]);

• require that landlords obtain prior approval of the Division before amending their annual rent registrations (see RSC 2528.3 [c]);

• require that lease riders advise tenants of their right, within sixty days of the execution of the lease, to obtain from their landlords the documentation supporting the detailed description on how their rent was calculated (see RSC 2522.5 [c] [1] [i] - [ii]); and

• establish a default formula for calculating the legal rent in instances where either (1) the rent charged on the base date cannot be determined; (2) a full rental history from the base date is not provided; (3) the base date rent is the product of a fraudulent scheme to deregulate the apartment; or (4) a "conditional rental practice" - rental conditioned on non-primary residence, rental conditioned on the use of corporate name or professional/commercial use, or illusory/collusive tenancy - has been committed (see RSC 2522.6 [b] [2] and 2526.1 [g]).

Discussion

Defendants' cross motion to dismiss plaintiffs' complaint under CPLR 3211 (a) (1) is denied. Defendants' so-called documentary evidence, which is the only ground on which they are moving to dismiss, does not utterly refute plaintiffs' allegations or conclusively establish a defense as a matter...