Court Opinion

ID: 9950827
Source: CourtListenerOpinion
Date Created: 2024-03-14 20:10:25.595905+00
Date Added: 2024-06-11T14:36:51.553867
License: Public Domain

197 Madison Holdings LLC v NYS Div. of Hous. &
                  Community Renewal
               2024 NY Slip Op 30759(U)
                     March 11, 2024
           Supreme Court, New York County
        Docket Number: Index No. 151090/2022
                  Judge: Arlene P. Bluth
Cases posted with a "30000" identifier, i.e., 2013 NY Slip
 Op 30001(U), are republished from various New York
 State and local government sources, including the New
  York State Unified Court System's eCourts Service.
 This opinion is uncorrected and not selected for official
                       publication.
                                                                                                                     INDEX NO. 151090/2022
  NYSCEF DOC. NO. 36                                                                                           RECEIVED NYSCEF: 03/11/2024

                                   SUPREME COURT OF THE STATE OF NEW YORK
                                             NEW YORK COUNTY
            PRESENT:             HON. ARLENE P. BLUTH                                            PART                              14
                                                                                      Justice
            ---------------------------------------------------------------------------------X   INDEX NO.          151090/2022
                197 MADISON HOLDINGS LLC
                                                                                                 MOTION DATE        03/04/20241
                                                         Petitioner,
                                                                                                 MOTION SEQ. NO.         001
                                                 -v-
                NYS DIVISION OF HOUSING AND COMMUNITY
                                                                                                   DECISION + ORDER ON
                RENEWAL,
                                                                                                         MOTION
                                                         Respondent.
            ---------------------------------------------------------------------------------X

            The following e-filed documents, listed by NYSCEF document number (Motion 001) 1- 8, 9, 10, 11, 12,
            13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34
            were read on this motion to/for                                                       ARTICLE 78                       .

                      The petition to annul a determination by respondent in a rent overcharge dispute is

            granted.

            Background

                      This proceeding concerns a specific apartment in a building owned by petitioner in

            Manhattan. Respondent’s Tenant Protection Unit (“TPU”) commenced an audit of the building

            and, specifically, of the Individual Apartment Improvement (“IAIs”) claimed by petitioner. TPU

            then filed an overcharge complaint based in part on a rent-freeze order for the building from

            December 2000 (this order was not lifted until 2020 – two decades later).

                      Petitioner contends that it took ownership of the building pursuant to a deed dated August

            3, 2017 and that the overcharge proceeding was pending when it took over the premises. It

            1
             The Court observes that it appear thats this proceeding was scheduled for oral argument before a different judge on
            multiple occasions in 2022 but it is unclear whether that oral argument actually took place. Although this
            proceeding was only assigned to the undersigned on March 4, 2024, the Court apologizes on behalf of the court
            system for the years-long delay in the resolution of this petition.
                151090/2022 197 MADISON HOLDINGS LLC vs. NYS DIVISION OF HOUSING AND COMMUNITY                       Page 1 of 7
                RENEWAL
                Motion No. 001

                                                                           1 of 7
[* 1]
                                                                                                   INDEX NO. 151090/2022
  NYSCEF DOC. NO. 36                                                                       RECEIVED NYSCEF: 03/11/2024

            argues that it did not receive any rent ledgers or proof of payment concerning prior tenants from

            the prior owner and insists it would not expect to receive this information.

                   Petitioner complains that when respondent asked for a rent ledger for the period from

            August 28, 2014 through August 31, 2015, petitioner claimed it was not the owner of the

            building then and had no records from that time. Petitioner insists that the Rent Administrator

            (“RA”) found that an overcharge occurred for the aforementioned period based solely on the

            terms of a vacancy lease and a rent reduction order. Petitioner challenged that finding and filed a

            Petition for Administrative Review (“PAR”).

                   In the PAR, respondent noted that “On August 28, 2014, TPU filed a rent overcharge

            complaint with the Office of Rent Administration with respect to the subject apartment. The TPU

            complaint alleged amongst other things, that the rent of $2700.00 charged and collected by the

            owner on August 28, 2014 constitutes an overcharge” (NYSCEF Doc. No. 2 at 1). Respondent

            upheld the RA’s determination that there was an overcharge. It observed that “the RA properly

            gave effect to the agency's rent reduction order under Docket Number OI430018B, which froze

            the rent at $126.45 per month. This rent reduction Order imposed a continuing obligation on the

            petitioner to restore the rent and, pursuant to Cintron remained part of the rental history

            considered in the overcharge proceeding” (id. at 5).

                   “Here, the agency initiated the complaint and tenant production of records of rent

            payments is not an issue. The evidentiary record demonstrates that the RA properly relied upon

            the lease of Zachary Jacinto, which commenced on August 28, 2014 and sets forth a monthly

            rent of $2700.00, as evidence of the rent paid for the overcharge period. It is further noted that on

            April 12, 2019 and again in the final notice of treble damages, this agency provided the petitioner

            with ample opportunity to produce evidence of the rent charged and collected. Given that the

             151090/2022 197 MADISON HOLDINGS LLC vs. NYS DIVISION OF HOUSING AND COMMUNITY        Page 2 of 7
             RENEWAL
             Motion No. 001

                                                          2 of 7
[* 2]
                                                                                                   INDEX NO. 151090/2022
  NYSCEF DOC. NO. 36                                                                       RECEIVED NYSCEF: 03/11/2024

            petitioner failed to produce any evidence that would indicate that the tenant did not pay the

            $2700.00 rent in the lease, it was reasonable for the RA to find that this rent was charged and

            paid” (id. at 6).

                    Petitioner argues that there is no evidence that the prior owner collected rent in the

            amount of $2,700. It claims that there is only a vacancy lease where rent was reserved in that

            amount but nothing on the record shows that the tenant actually paid that amount. Petitioner

            insists that respondent lacks substantial evidence to show that the overcharged rent was actually

            collected.

                    Respondent contends that much of petitioner’s arguments focus on the substantial

            evidence standard, which is not applicable here as there was no need for a hearing. It observes

            that this complaint was opened by the TPU—an arm of respondent—and the correct standard

            here was whether respondent’s PAR denial was rational.

                    Respondent contends that TPU conducted an audit for the subject apartment because

            there was a large increase in rent after a vacancy. It maintains that the previous owner pointed to

            IAIs as justification for the rental increase. However, respondent observes that there was an

            order freezing and reducing rents building wide as of December 8, 2000 based on a reduction in

            services. It emphasizes that at the time of the referral from TPU to respondent’s Office of Rent

            Administration in 2017, the prior owner had not yet filed an application to show that the services

            had been restored.

                    This meant, in effect, that the rent for the applicable time period (August 28, 2014

            through August 31, 2015) should have been frozen at the level in effect at the time the rent

            reduction order was issued back in 2000. Respondent observes that petitioner filed an application

            for a restoration order in 2020. It also stresses that the RA gave the owner the full amount of

             151090/2022 197 MADISON HOLDINGS LLC vs. NYS DIVISION OF HOUSING AND COMMUNITY        Page 3 of 7
             RENEWAL
             Motion No. 001

                                                           3 of 7
[* 3]
                                                                                                  INDEX NO. 151090/2022
  NYSCEF DOC. NO. 36                                                                      RECEIVED NYSCEF: 03/11/2024

            rental increases for the IAIs. Respondent maintains that petitioner is liable for the overcharges of

            the prior owner under the relevant Rent Stabilization Code section (Section 2526.1[f][2][i]).

                   In reply, petitioner emphasizes that respondent did not show any proof that the rent was

            paid by the tenant and that the burden of proof rests with the respondent.

            Discussion

                   The primary issue in this proceeding concerns burdens. There is no dispute that the prior

            owner charged an amount it was not eligible to seek as there was a rent freeze order from 2000

            that was still in effect during the subject time period (August 2014 to August 2015). The

            question, then, is whether there is a difference between simply charging an impermissible

            amount and collecting it.

                   The Rent Stabilization Code provides, in pertinent part, that “Any owner who is found by

            the DHCR, after a reasonable opportunity to be heard, to have collected any rent or other

            consideration in excess of the legal regulated rent shall be ordered to pay to the tenant a penalty

            equal to three times the amount of such excess, except as provided under subdivision (f) of this

            section” (9 NYCRR 2526.1 [emphasis added]).

                   The Rent Stabilization Law states, in part, that “Subject to the conditions and limitations

            of this subdivision, any owner of housing accommodations who, upon complaint of a tenant, or

            of the state division of housing and community renewal, is found by the state division of housing

            and community renewal, after a reasonable opportunity to be heard, to have collected an

            overcharge above the rent authorized for a housing accommodation subject to this chapter shall

            be liable to the tenant for a penalty equal to three times the amount of such overcharge”

            (Administrative Code of City of New York § 26-516[a] [emphasis added]).

             151090/2022 197 MADISON HOLDINGS LLC vs. NYS DIVISION OF HOUSING AND COMMUNITY        Page 4 of 7
             RENEWAL
             Motion No. 001

                                                          4 of 7
[* 4]
                                                                                                  INDEX NO. 151090/2022
  NYSCEF DOC. NO. 36                                                                       RECEIVED NYSCEF: 03/11/2024

                    These two provisions suggest that the burden is on the moving party—here the

            respondent itself—to show that the owner collected rent in excess of the amount permissible.

            That compels the Court to grant the petition and annul respondent’s determination. Respondent’s

            assertion in the PAR that the Rent Stabilization Law section cited above “does not set forth a

            bright-line evidentiary requirement for DHCR to find that an overcharge was collected”

            (NYSCEF Doc. No. 2 at 6) is not supported with any citation, such as binding caselaw, that

            shows respondent need not show that the overcharged amount was actually collected. Moreover,

            this argument is contrary to a plain reading of the applicable statutory scheme which specifically

            cites the collection of rent.

                    The PAR determination acknowledges that collecting rent is an issue when tenants bring

            overcharge complaints (id.). Respondent claimed that “The cases cited by petitioner for the

            proposition that the agency and courts have previously found that the failure to provide proof of

            payment bars an overcharge are misplaced in that they are not agency initiated actions and

            involve the tenant's failure to produce evidence of rent payments” (id.). But respondent pointed

            to no justification for its assertion that agency-initiated overcharge complaints do not require the

            agency to show the rent that was collected. And the Rent Stabilization Law section cited above

            specifically mentions rent collected and includes a complaint filed by respondent (Administrative

            Code of City of New York § 26-516[a]). The Court sees no basis to create a distinction between

            a tenant-initiated complaint and one started by respondent.

                    Respondent instead attempts to blame petitioner for not getting rent ledgers from the

            prior owners. To be sure, the failure to get that information by petitioner is quite curious and

            risky. Had a tenant or respondent showed that the tenant paid the rent, petitioner’s claim that it

            did not have the rent ledgers might complicate its ability to defend against such a complaint.

             151090/2022 197 MADISON HOLDINGS LLC vs. NYS DIVISION OF HOUSING AND COMMUNITY        Page 5 of 7
             RENEWAL
             Motion No. 001

                                                          5 of 7
[* 5]
                                                                                                   INDEX NO. 151090/2022
  NYSCEF DOC. NO. 36                                                                       RECEIVED NYSCEF: 03/11/2024

            But, in this Court’s view, petitioner’s lack of information is not a basis to find that respondent

            met its burden to show there was an overcharge.

            Summary

                   The central issue in this proceeding is what is required to show that an overcharge

            occurred. A plain reading of the applicable statutes as well as practical application of these types

            of disputes compels the conclusion that the complaining party must show that the too-high rent

            was actually paid. After all, the damages calculation begins by finding the difference between the

            rent paid and the rent that was permitted to be charged. It would make little sense to permit a

            party to recover for overcharge where no rent (or some lesser amount of rent) was paid—the

            purpose of an overcharge complaint is not to give a party a windfall.

                   And respondent did not point to any binding caselaw that in respondent/agency-initiated

            overcharge complaints, it merely has to show the amount that could have been collected instead

            of showing the amount that the tenant actually paid. That means the agency would be collecting

            money with absolutely no proof that the tenant actually overpaid. The fact is that there is no

            evidence that the (prior) landlord collected amounts to which it was not entitled. It makes no

            sense to allow a windfall to an agency based on this record.

                   Accordingly, it is hereby

             151090/2022 197 MADISON HOLDINGS LLC vs. NYS DIVISION OF HOUSING AND COMMUNITY        Page 6 of 7
             RENEWAL
             Motion No. 001

                                                          6 of 7
[* 6]
                                                                                                  INDEX NO. 151090/2022
  NYSCEF DOC. NO. 36                                                                        RECEIVED NYSCEF: 03/11/2024

                    ADJUDGED that the petition is granted and the subject petition for administrative review

            is annulled and set aside, and petitioner is entitled to recover costs and disbursements upon

            presentation of a bill of costs to the County Clerk.

                    3/11/2024                                                          $SIG$
                      DATE                                                     ARLENE P. BLUTH, J.S.C.
             CHECK ONE:               X   CASE DISPOSED                 NON-FINAL DISPOSITION

                                      X   GRANTED             DENIED    GRANTED IN PART             OTHER

             APPLICATION:                 SETTLE ORDER                  SUBMIT ORDER

             CHECK IF APPROPRIATE:        INCLUDES TRANSFER/REASSIGN    FIDUCIARY APPOINTMENT       REFERENCE

             151090/2022 197 MADISON HOLDINGS LLC vs. NYS DIVISION OF HOUSING AND COMMUNITY       Page 7 of 7
             RENEWAL
             Motion No. 001

                                                           7 of 7
[* 7]