Opinion
83761/19
12-18-2020
EPOCH CORP., Petitioner, v. Tommy DOE, Respondent-tenant, "John Doe" and "Jane Doe," Respondents-undertenants. Epoch Corp., Petitioner, v. Rebecca McDonald, Respondent-tenant, "Neesmith Onzeur" and "Jack Case," Respondents-undertenants.
Petitioner's attorneys Law Offices of Malan Lentini, PLLC, 41-25 Kissena Blvd., No. 116, Flushing, N.Y. 11355 Respondent's attorneys Law Office of Thomas J. Hillgardner, 82-63 170th Street, Jamaica, New York 11432
Petitioner's attorneys Law Offices of Malan Lentini, PLLC, 41-25 Kissena Blvd., No. 116, Flushing, N.Y. 11355
Respondent's attorneys Law Office of Thomas J. Hillgardner, 82-63 170th Street, Jamaica, New York 11432
David A. Harris, J.
Recitation, as required by CPLR 2219(a), of the papers considered in the review of respondent's motion for summary judgment and petitioner's cross-motion for leave to amend reply to counterclaims, vacatur of judgment under index number 61097/18, and consolidation of 83765/19 with 61097/18, and for an order requiring payment of arrears, or issuance of a warrant.
Papers Numbered
Notice of motion & Affidavits Annexed 1
Notice of Cross-Motion and Affidavits Annexed 2
Answering Affidavits
Replying Affidavits 3
Exhibits
Other
Upon the foregoing cited papers, the Decision and Order on this Motion is as follows:
Initially, the court notes that petitioner's motion and respondent's cross-motion under index numbers 83761/19 and 83765/19 are consolidated for purposes of disposition. The procedural histories of the proceedings are substantially identical. Petitioner commenced each after the service of a petition dated November 6, 2019. Each petition alleges that it was proceeded by an oral demand for rent — 83761/19 seeks to recover rent at $850 per month for October 2018 through November 2019 and 83765/19 seeks rent at $2250 per month for May 2018 through November 2019. The petitions in both proceedings allege that 397 Linden Street, in Brooklyn (Building) is not subject to rent control or the Rent Stabilization Law of 1969 "by reason of the fact that the housing accommodations in this six (6) family house are or have become vacant on or after April 1, 1953 and by reason of vacancy decontrol." The petition further alleges that "[t]he premises are not subject to regulation pursuant to Emergency Tenant Protection Act of 1974 for the reasons that the premises were constructed after January 1, 1974, that the building contains fewer than six units and/or that the premises have been decontrolled pursuant to the Vacancy Decontrol Law."
Both matters initially appeared on the court's calendar on December 5, 2019, with respondents represented by counsel who had interposed answers setting forth numerous affirmative defenses and counterclaims. On that day both proceedings were dismissed on petitioner's default. By Motions returnable January 22, 2020, petitioner sought vacatur of the defaults. The Hon. Eleanora Ofshtein, in an order dated January 22, 2020, consolidated the motions for purposes of disposition and issued an order granting petitioner's motion to restore, and permitted on consent the filing of reply to the counterclaims, which had been earlier rejected. The order also granted petitioner's application to discontinue its prima facie case and set a trial date of March 9, 2020 for the limited purpose of trial on counterclaims related to rent overcharge, as respondent withdrew all other counterclaims on consent.
On March 9, 2020, the court further adjourned the proceedings to April 20, 2020. Before that date was reached, as a consequence of the COVID-19 pandemic, the chief administrative judge of the state issued an order closing this court to all but essential applications after March 16, 2020 (Administrative Order 68/20, March 16, 2020). As executive orders, administrative orders, and implementing memoranda increased the scope of proceedings and their elements that the court could address, this court scheduled a virtual appearance in the matter, which took place on August 19, 2020. The matter was then adjourned for an extended period to October 29, 2020, in anticipation of respondent's motion being made, with opposition and reply served and filed so that the motion could be heard on that day.
On October 29, 2020, the parties appeared as scheduled. Both respondent's motion for summary judgment and respondent's reply had been filed, but petitioner's opposition to summary judgment, though served, had not been filed. Petitioner's counsel asserted that it had been timely served, but that technical difficulties had prevented its timely filing. Under those circumstances, the court granted petitioner's application for an extension of time to file the opposition papers it had served, directing that they be filed no later than November 2, 2020. The court expressly provided that, as long as the papers were marked as having been filed on November 2, 2020, even if, because of processing delays, the court did not become aware of their filing until a later date, they would be considered timely. The corollary to that, as the court informed the parties, was that if the papers were not filed by November 2, 2020, the motion would be marked submitted without opposition.
Petitioner never filed the opposition papers that had been served.
Instead of filing the opposition papers, petitioner, in the early morning hours of November 3, 2020, at approximately 1:11 AM, electronically filed cross-motions in both proceedings. Both cross-motions sought denial of the motion in chief, leave to amend the verified reply to counterclaims, and an order for payment of arrears with issuance of a warrant of eviction on default; the motion filed in 83765/19 sought vacatur of a default judgment entered under index number 61097/2018, a prior proceeding relating to the same apartment, and consolidation of the two proceedings. The court scheduled virtual appearances on November 17, 2020, when the putative cross-motions were made returnable.
In an oral decision issued that day, the court denied both cross-motions, noting the procedural impropriety of serving cross-motions to motions that had been marked submitted when petitioner failed to timely file the already-served opposition papers, and the more fundamental impropriety of serving but failing to file opposition papers, receiving a reply to that opposition, and then, with the benefit of having reviewed the reply, serving a cross-motion and essentially treating the previously served opposition as a nullity. On the return date, the court became aware that both electronically filed cross-motions had been returned for correction as incorrectly filed, the entire motion had been submitted as a single document rather than each component being individually submitted. At the time of argument, only the notice of motion in 83761/19 had been properly resubmitted.
This order reduces the oral decision previously rendered to a writing. To the extent that the cross-motions can be construed as having been filed, petitioner's cross-motions are denied.
Respondent's unopposed motions seeks summary judgment on two counterclaims, both of which respondent's counsel characterizes as unpled. The first seeks judgment for conversion of respondent's security deposit, and the second seeks judgment for rent overcharge.
Summary judgment is a drastic remedy, one to be granted only when there is no doubt that no triable issue of material fact exists ( Rotuba Extruders v. Ceppos , 46 NY2d 223 [1978] ). It is the procedural equivalent of a trial ( Falk v. Goodman , 7 NY2d 87 [1959] ), and the proponent of summary judgment is required to make a prima facie showing of entitlement to judgment as a matter of law ( Winegrad v. New York. Univ. Med. Center , 64 NY2d 851 [1985] ). If the movant succeeds in doing so, the party opposing the motion must demonstrate, through the presentation of evidence in admissible form, the existence of a factual issue requiring trial ( Zuckerman v. City of New York , 49 NY2d 557, 560 ). The "shadowy semblance" of an issue is not sufficient to defeat a motion for summary judgment ( S. J. Capelin Assocs. v. Globe Mfg. Corp. , 34 NY2d 338, 341 [1974] ), nor are "mere conclusions, expressions of hope or unsubstantiated allegations or assertions," ( Zuckerman , 49 NY2d at 562 ). Summary judgment may be granted as to a cause of action not pleaded "if the proof supports such cause and if the opposing party has not been misled to its prejudice." It has further been held that:
"[w]hile the general rule is that a party may not obtain summary judgment on an unpleaded cause of action ( Cohen v. City Co. of New York, 283 NY 112, 27 N.E.2d 803 ), it is also true that summary judgment may be awarded on an unpleaded cause of action if the proof supports such cause and if the opposing party has not been misled to its prejudice ( Torrioni v. Unisul, Inc., 214 AD2d 314, 315, 624 N.Y.S.2d 433 ). As with a trial, the court may deem the pleadings amended to conform to the proof ( Deborah International Beauty, Ltd. v. Quality King Distributors, Inc., 175 AD2d 791, 793, 573 N.Y.S.2d 189 )."
( Weinstock v. Handler , 254 AD2d 165, 166 [1st Dept 1998] ).
Here, the January 22, 2020 order of the Hon. Eleanora Ofshtein specifically notes that all counterclaims other than those involving rent overcharge were being withdrawn on consent. The phrasing of the order is significant, in that it does not note specific counterclaims that are being withdrawn but is expressly phrased to note the withdrawal of all counterclaims other than those for rent overcharge. Respondent now, having never pleaded a claim for conversion of the security deposit, entirely unrelated to any claim for overcharge, but seeks summary judgment on that unpled claim. To permit respondent now to seek judgment on a claim never pleaded would be inappropriate. The branch of respondent's motion seeking summary judgment for conversion of the security deposit is accordingly denied without prejudice to reassertion of the claim in an appropriate forum.
The remaining branch of respondent's motion seeks summary judgment for rent overcharge. While respondent characterizes the counterclaim for overcharge as unpled, the court finds that descriptor not entirely accurate. Respondents' answers in both proceedings do, in fact, allege overcharge; the scope of damages sought, however, reflects the broader remedies enacted as part of the Housing Security and Tenant Protection Act of 2019 (HSTPA). With the decision of the Court of Appeals in Regina Metro. Co., LLC v. New York State Div. of Hous. and Community Renewal (35 NY3d 332, 356 [2020], rearg denied sub nom. Raden v. W7879, LLC , 35 NY3d 1079 [2020], and rearg denied sub nom. Taylor v. 72A Realty Assoc., L.P. , 35 NY3d 1081 [2020] ) those statutory modifications were held inapplicable under the circumstances of this proceeding, relegating respondents to a claim under the law as it existed prior to passage of the HSTPA. Petitioner cannot reasonably assert either surprise or prejudice due to the instant motion.
At the heart of respondents' claims is the issue of the Building's regulatory status. Specifically, the petition asserts that the Building contains six units and that the Apartment became vacant on or after April 1, 1953; petitioner asserts this in support of the claim that the Apartment is not subject to the Rent Control Law or the Rent Stabilization Law of 1969. While vacancy after April 1, 1953 constitutes an exclusion from rent control for one and two family homes (New York City Rent and Rehabilitation Law [Administrative Code of the City of NY] § 26-403[e][2][i][4] ), that date has no significance under the Rent Stabilization Law of 1969.
The petition then asserts that the Building either contains fewer than six units, was constructed after January 1, 1974 "and/or that the premises have been decontrolled pursuant to the Vacancy Decontrol Law."
Since it is nowhere alleged that the Apartment is subject to rent control, and the petition has earlier asserted that the building contains six dwelling units, the only potentially viable alternative of those offered for exemption from rent stabilization is the claim of vacancy decontrol.
Respondent, however, asserts that petitioner is estopped from denying that the building and apartment subject to these proceedings are rent stabilized. In support of this, respondent points to an order of the Hon. Kimberly Slade issued in a proceeding entitled "Epoch Corp. v. Rebecca McDonald, Neesmith Onzeur, Jack Case, John Doe & Jane Doe" under index number L & T 61097/18. That order, dated May 13, 2019, was issued without opposition on a motion seeking relief pursuant to CPLR 3126, and seeking dismissal and a default judgment on respondent's counterclaim of rent overcharge. The order, in pertinent part, reads as follows:
"respondents ask the court, pursuant to CPLR 3126 to resolve the issues of substantial rehabilitation and the regulatory status of the premises against petitioner on respondents' first and fourth affirmative defenses....
Based upon petitioner's failure to comply with the discovery stipulation, reduced to an order of the court, and based upon petitioner's failure to respond or otherwise oppose this motion, this prong of the motion is granted pursuant to CPLR 3126. The first affirmative defense is resolved in favor of respondents and the building is determined to have been improperly removed from rent stabilization by filing statement with the DHCR that asserted a substantial rehabilitation to, of, or at the premises, that appears not to have occurred. The premises thus remain subject to rent stabilization, having been improperly removed from that regulatory scheme."
Respondent argues that collateral estoppel applies, and that this court is bound to reach the same conclusion. It has been held that:
"Under the doctrine of collateral estoppel, or issue preclusion, ‘a party is precluded from relitigating an issue which has been previously decided against him [or her] in a prior proceeding where he [or she] had a full and fair opportunity to litigate such issue’ " ( Franklin Dev. Co., Inc. v. Atlantic Mut. Ins. Co., 60 AD3d 897, 899, 876 N.Y.S.2d 103, quoting Luscher v. Arrua, 21 AD3d 1005, 1007, 801 N.Y.S.2d 379 ; see D'Arata v. New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 664, 563 N.Y.S.2d 24, 564 N.E.2d 634 ). "The doctrine of collateral estoppel is ‘intended to reduce litigation and conserve the resources of the court and litigants and it is based upon the general notion that it is not fair to permit a party to relitigate an issue that has already been decided against it’ " ( Franklin Dev. Co., Inc. v. Atlantic Mut. Ins. Co., 60 AD3d at 899, 876 N.Y.S.2d 103, quoting Kaufman v. Eli Lilly & Co., 65 NY2d 449, 455, 492 N.Y.S.2d 584, 482 N.E.2d 63 ). " ‘The two elements that must be satisfied to invoke the doctrine of collateral estoppel are that (1) the identical issue was decided in the prior action and is decisive in the present action, and (2) the party to be precluded from relitigating the issue had a full and fair opportunity to contest the prior issue’ " ( Franklin Dev. Co., Inc. v. Atlantic Mut. Ins. Co., 60 AD3d at 899, 876 N.Y.S.2d 103, quoting Luscher v. Arrua, 21 AD3d at 1007, 801 N.Y.S.2d 379 ; see Kaufman v. Eli Lilly & Co., 65 NY2d at 455, 492 N.Y.S.2d 584, 482 N.E.2d 63 ).
( Westchester County Correction Officers Benev. Ass'n, Inc. v. County of Westchester , 65 AD3d 1226, 1227 [2d Dept 2009] ). Here, the Building has been determined to remain subject to rent stabilization, and the filings that led to its deregulation were untrue. Petitioner in this proceeding was a party to that proceeding. The issue of regulatory status was plainly at issue as in this one; the motion resulting in the decision quoted above sought a determination that the Building was rent stabilized, and the court found that there had been false filings regarding substantial rehabilitation. Here, respondent asserts that no substantial rehabilitation occurred, that filings with the New York State Division of Housing and Community Renewal so indicating are false, and that in filing them, petitioner engaged in a fraudulent scheme to deregulate the building.
The decision also addresses the procedural history of that earlier proceeding, noting that petitioner failed to comply with a discovery stipulation that was reduced to an order, and failed to oppose in writing or to appear in opposition to respondent's motion. Plainly, petitioner, represented by counsel in the prior proceeding, was an active party in that prior litigation, having entered into a stipulation regarding disclosure. That petitioner neither appeared nor opposed the motion does not mean that petitioner was deprived of a full and fair opportunity to litigate the issues. Rather, it means that petitioner did not avail itself of that opportunity. The failure of a party to avail itself of the opportunity to litigate an issue does not insulate that party from being collaterally estopped from challenging the court's findings and holding. (See Conason v. Megan Holding, LLC , 25 NY3d 1, 18 [2015] ). Respondent has established the necessary elements for collateral estoppel to apply. Petitioner is collaterally estopped from disputing that the Building remains subject to rent stabilization.
The petition in each proceeding, notwithstanding the express finding in the May 13, 2019 order that the Building was improperly removed from to Rent Stabilization and remains stabilized, incorrectly assert that the apartments subject to these proceedings are no longer subject to rent stabilization. A DHCR rent registration indicates registration as exempt based upon substantial rehabilitation from 2003 forward. While respondent provides the registration for only one apartment, the necessary implication of a claimed exemption from rent stabilization based upon substantial rehabilitation is that the entire building, rather than a particular apartment, has been rehabilitated, and the claimed exemption would necessarily apply to all apartments ( Rent Stabilization Code § 2520.11 [the exemption applies to "buildings substantially rehabilitated as family units on or after January 1, 1974"] ).
The Housing Stability and Tenant Protection Act of 2019 (2019 Sess. Law News of NY Ch. 36, pt. N, § 29 [S. 6458] [McKinney's] ) (HSTPA), significantly changes the scope and breadth of factors to be determined in evaluating claims of overcharge. Those changes, however, are inapplicable to the instant proceeding, as respondents' claims of overcharge predate its passage, and are to be determined under the law existing prior to the passage of the HSTPA ( Matter of Regina Metro , 35 NY3d 332 ).
The claims of rent overcharge advanced here are therefore subject to a four year statute of limitations (former CPLR 213-a ), and the court is generally restricted in its review of the rent history to a period four years prior to the interposition of the overcharge claim. The Rent Regulation Reform Act of 1997:
"clarified and reinforced the four-year statute of limitations applicable to rent overcharge claims ... by limiting examination of the rental history of housing accommodations prior to the four-year period preceding the filing of an overcharge complaint" ( Thornton, 5 NY3d at 180, 800 N.Y.S.2d 118, 833 N.E.2d 261, citing Matter of Gilman v. New York State Div. of Hous. & Community Renewal, 99 NY2d 144, 149, 753 N.Y.S.2d 1, 782 N.E.2d 1137 [2002] ; see also Matter of Cintron v. Calogero, 15 NY3d 347, 912 N.Y.S.2d 498, 938 N.E.2d 931 [2010] [decided today]; Governor's Approval Mem., Bill Jacket, L. 1997, ch. 116). To effectuate the purpose of the four-year limitations period, in rent overcharge cases DHCR **928 ***495 regulations, as relevant here, set the "legal regulated rent" as the rent charged on the "base date," which is the "date four years prior to the date of the filing of [the overcharge] complaint" plus any subsequent lawful increases ( 9 NYCRR 2520.6 [e], [f][1]; 2526.1[a][3][i] ).
( Matter of Grimm v. State Div. of Hous. and Community Renewal Off. of Rent Admin. , 15 NY3d 358, 365 [2010] ). However, in circumstances when the court found that petitioner had attempted to circumvent rent regulation through a fraudulent scheme, the court carved out an exception to the limited examination of the rent history. It held that:
"that the apartment's prior rental history could not be examined, and that the stabilized rent before the fraudulent scheme was of no relevance, we nonetheless rejected the owner's contention that "the legal regulated rent should be established by simple reference to the rental history" on the date four years prior to the commencement of the overcharge action ( id. at 180-181, 800 N.Y.S.2d 118, 833 N.E.2d 261 ). We explained that the lease was "void at its inception" because its "circumvent[ion of] the Rent Stabilization Law" violated public policy ( id. at 181, 800 N.Y.S.2d 118, 833 N.E.2d 261 ). As a result, the rent registration statement in effect on the base date "listing this illegal rent was also a nullity" (id. ). Rather than using the registration statement to ascertain the rent on the base date, we instructed DHCR to use the so-called default formula to calculate the rent on the base date, as it does when no reliable records are available (see id. ; see also Levinson v. 390 W. End Assoc., L.L.C., 22 AD3d 397, 400—401, 802 N.Y.S.2d 659 [1st Dept.2005] ).1
DHCR contends that our holding in Thornton should be constrained to the narrow set of circumstances described in that case and that we should limit its application to cases involving illusory tenancies. We disagree and conclude that, where the overcharge complaint alleges fraud, as here, DHCR has an obligation to ascertain whether the rent on the base date is a lawful rent.
( Id. , 15 NY3d at 365-66 [2010] ).
The rent history provides no meaningful information as to rent on the base dates of November 27, 2015, four years prior to the service of respondents' answers, with "exempt" as the registration entry from 2003 forward. Examination of earlier rent history is only warranted if this court finds that petitioner engaged in a fraudulent scheme to deregulate the apartments. The unchallenged facts compel that conclusion here. Judge Slade's 2019 decision and order found expressly that petitioner filed documents with the DHCR alleging a substantial rehabilitation that the court did not believe had occurred. Evidence of fraud sufficient to support a broader examination of the rent history:
"consists of "evidence [of] a representation of material fact, falsity, scienter, reliance and injury" ( Vermeer Owners v. Guterman, 78 NY2d 1114, 1116, 578 N.Y.S.2d 128, 585 N.E.2d 377 [1991] ; see e.g. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 31 NY3d 569, 81 N.Y.S.3d 816, 106 N.E.3d 1176 [2018] ; Pasternack v. Laboratory Corp. of Am. Holdings, 27 NY3d 817, 827, 37 N.Y.S.3d 750, 59 N.E.3d 485 [2016] ). In this context, willfulness means "consciously and knowingly charg[ing] ... improper rent" ( Matter of Lavanant v. New York State Div. of Hous. & Community Renewal, 148 AD2d 185, 190, 544 N.Y.S.2d 331 [1st Dept. 1989] ; see Matter of Old Republic Life Ins. Co. v. Thacher, 12 NY2d 48, 56, 234 N.Y.S.2d 702, 186 N.E.2d 554 [1962] [interpreting "willful" in a regulatory context to mean "intentional and deliberate"] ).
( Regina Metro. Co., LLC v. New York State Div. of Hous. and Community Renewal , 35 NY3d 332, 356 [2020], rearg denied sub nom. Raden v. W7879, LLC , 35 NY3d 1079 [2020], and rearg denied sub nom. Taylor v. 72A Realty Assoc., L.P. , 35 NY3d 1081 [2020] ). The willful filing of documents falsely asserting the substantial rehabilitation of a building, resulting in an improper exemption from rent stabilization, meets the definition of fraud.
As a consequence of the fraud, there is no reliable rent on the base date that can be used to calculate an overcharge, and the formula set forth in Rent Stabilization Code § 2526.1 to determine the rent on the base date applies ( Regina Metro. Co., LLC 35 NY3d 332 at 359 ). That section provides multiple means of determining the base date rent:
"Where the rent charged on the base date cannot be determined, a full rental history from the base date is not provided, or the base date rent is the product of a fraudulent scheme to deregulate the apartment or a rental practice proscribed under section 2525.3(c) and (d) of this Title has been committed, the rent shall be established at the lowest of the following amounts.
(1) the lowest rent registered pursuant to section 2528.3 of this Title for a comparable apartment in the building in effect on the date the complaining tenant first occupied the apartment; or
(2) the complaining tenant's initial rent reduced by the percentage adjustment authorized by section 2522.8 of this Title; or
(3) the last registered rent paid by the prior tenant if within the four year period of review; or
(4) if the documentation set forth in paragraphs (1) through (3) of this subdivision is not available or is inappropriate, data compiled by the DHCR, using sampling methods determined by the DHCR, for regulated housing accommodations."
( 9 NYCRR § 2526.1 [g] ). The first of these methods cannot be employed, as there is no indication of any registered rent for any apartment on the days the respondents first occupied their respective apartments. The second method is equally inapplicable, requiring a calculation based upon section 2522.8 of the rent stabilization code. That section provides a method for the calculation of a vacancy increase, but explicitly provides for the increase to be calculated by reference to "the previous legal regulated rent." ( Rent Stabilization Code [9 NYCRR] § 2522.8[a] ). None exists for either apartment. The next mode calls for the rent to revert to the registered rent paid by the prior tenant if such rent was paid within four years of the overcharge complaint. In both cases before the court, respondents were the occupants four years prior to the interposition of overcharge complaints, rendering that statutory section inapplicable.
Here, respondent asks the court to balance the equities ( 9 NYCRR 2522.7 ) and determine the rent on the base date by reducing rent pursuant to section 2522.8. However, balancing the equities does not permit the court to apply a patently inapplicable method of calculating a base date rent and an overcharge, and would run afoul of clear mandates not to formulate unauthorized methods of calculation (See Regina Metro. Co., LLC 35 NY3d 332 ).
The only mode available for calculation of rent on the base date is the last set forth in the regulation, which requires "data compiled by the DHCR, using sampling methods determined by the DHCR, for regulated housing accommodations" ( 9 NYCRR § 2526.1 [g][4] ). No such data has been presented here, rendering it impossible for the court to determine the rent on the base date for purposes of calculation of an overcharge.
Given the absence of opposition, the allegations of respondent's affidavits are deemed admitted, as "[f]acts appearing in the movant's papers which the opposing party does not controvert, may be deemed to be admitted," ( Kuehne & Nagel, Inc. v. Baiden , 36 NY2d 539, 544 [1975] ). The asserted, uncontroverted facts are sufficient to entitle respondent to partial summary judgment on the issue of liability for overcharge, but unresolved issues of fact remain as to the amount of the overcharge. Under these circumstances, respondents are entitled to partial summary judgment on the issue of liability for overcharge. The issue of damages for overcharge requires trial.
Petitioner's cross-motions are denied, and respondents' motions for summary judgment are denied as to the claims for conversion of respondents' security deposits and granted to the extent of partial summary judgment as to liability for overcharge, with the issue of the amount of overcharge requiring trial.
These matters will next appear on the court's calendar, via Microsoft Teams on January 11, 2021 at 9:30 AM, for transfer to Part X for trial.
This is the decision and order of the court.