Landlord-Tenant—Owners Rent Overcharge Entitles Tenants to Treble Damages—General Business Law §349 Claims Dismissed

A court granted defendants partial summary judgment to the extent that the complaint sought to have the court consider a 1993 Rent Reduction Order (1993 RRO) and dismissed the plaintiffs' cause of action for violation of General Business Law (GBL) §349. The plaintiffs cross-moved for an order granting partial summary judgment, awarding rent overcharges and treble damages under the Rent Stabilization Law (RSL) §26-516.

The building had been acquired by “A” on June 27, 1995. “B” is an officer and managing agent for the building. On Aug. 13, 1993, before “A's” purchase of the building, the NYS Division of Housing and Community Renewal (DHCR) had “issued a [1993 RRO] based upon the decrease of certain building services.” The 1993 RRO, applicable to plaintiffs' apartments, “reduced the rent 'to the level in effect prior to the most recent guideline increase which commenced before the effective date of this order [May 1, 1992].'” On Sept. 30, 2015, DHCR issued a rent restoration order, retroactive to Jan. 1, 2015, which indicated that the conditions cited in the 1993 RRO had been remedied. Thus, the restoration order restored the rent to the level in effect prior to the 1993 RRO.

The complaint alleged that “the defendants charged and collected rents…, in excess of the legal collectible rents, when the [1993 RRO] was in effect.” The plaintiffs sought recovery of all overcharges collected from April 6, 2012, four years before the filing of the complaint, through Dec. 2014 (the month before the effective date of the rent restoration order), together with interest and treble damages. The plaintiffs asserted that “the overcharges were willful.” They also asserted a claim under GBL §349, alleging that “the willful overcharges and defendants' commencement of Housing Court proceedings…constituted deceptive business practices.”

The defendants argued that the “the court should not consider the 'ancient' [1993 RRO].” The Court of Appeals had held that “the 'four-year limitations/look-back period' applicable to rent overcharge claims does not preclude consideration of previously issued rent reduction orders which remain in effect during that period.… Rent Stabilization Code [RSC] §2526.1(a)(2)(v) provides that [a rent reduction order] remaining in effect within four years of the filing of a complaint pursuant to this section may be used to determine an overcharge, award an overcharge, or calculate an award of the amount of an overcharge.”

The defendants, citing a Queens Supreme Court case, argued that “the permissive language included in RSC 2526.1(a)(2)(v) (i.e. 'may be used') makes it clear that there is no requirement that 'ancient' rent reduction orders serve as an automatic basis for issuing a rent overcharge award as implied by” the prior Court of Appeals decision. The defendants emphasized that the 1993 RRO had been “issued before the current owner had possession,” was “premised upon complaints made by prior tenants,” that “the conditions in the [1993 RRO] have not existed on the premises for many years, and that the rent charged by ['A'] is based on more than a decade of rent history.” The subject court “respectfully” declined to follow the Queens Supreme Court decision and held that RSC 2526.1(a)(2)(v), did “not contradict” the prior Court of Appeals' decision. The court explained that:

The permissive language…in the regulation allows a court to consider an extant rent reduction order in determining an overcharge, even though it was issued prior to the four-year rent history review limitations period. There is no language in the regulation otherwise mandating that the court assess any circumstances before applying the rent reduction order toward a determination, and calculating a rent overcharge. Indeed, RSL 26-514 provides,…, that an owner subject to a rent reduction order is “barred from applying for or collecting any further rent increases” while such rent reduction order remains in effect. RSC 2523.4 (a) (1) contains similar language. “Rent reduction orders thus place a 'continuing obligation' upon an owner to reduce rent until the required services are restored or repairs are made”.… Any tolerance by this court of rent increases while the 1993 rent reduction order was in effect would undermine the…RSL and RSC; and render meaningless the provisions requiring a landlord to procure a DHCR rent restoration order before the landlord may collect any rent increases.

Accordingly, that part of the defendants' motion granting partial summary judgment against the complaint “to the extent that it seeks to have this court honor the [1993 RRO]” was denied. There was no dispute that “A” had “charged and collected monthly rents in excess of [the] amounts” that had been frozen pursuant to the 1993 RRO from the base date until the effective date of the rent restoration order.

After noting that “[t]reble damages may not be awarded for a period of more than two years immediately preceding the complaint,” the court found that “A” had “failed to meet its burden to establish that the overcharges were not willful.” Part of plaintiffs' motion papers submitted, contained an affidavit submitted by “B” from another proceeding that indicated that “A” “'had no knowledge of the [1993 RRO] and that ['B'] 'had never seen it' until September 2013.” “B” asserted that when he first learned of the 1993 RRO in September 2013, “he 'immediately began to correct the conditions in questions.'”

However, the court found that “even with knowledge of the [1993 RRO], ['A'] still collected rent overcharges following September 2013.” Although “B” stated that he had not seen the 1993 RRO until Sept., “the order was presumably available from the DHCR for review, along with the rent registration history of the building, at the time ['A'] purchased the property in 1995.” The defendants had not alleged that “a due diligence review of DHCR records [had been] performed prior to purchase and that such review failed to uncover the [1993 RRO].” The court held that the plaintiffs were entitled to “treble damages on any overcharges collected for the two years prior to the filing of the complaint.”

GBL §349 proscribes “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state.” The statute is aimed “at wrongs against the consuming public.” A plaintiff must demonstrate that the wrongful conduct “had 'a broader impact on consumers at large.'” New York law has defined, “the term 'consumer'” as “an individual or natural person who purchases goods, services or property primarily for 'personal, family or household purposes.'”

Thus, the court held that “private contract disputes that are unique, private in nature, or involve a so-called 'single-shot' transaction do not fall with the statute's ambit….” Although GBL §349 applies to “virtually all economic activity” and generally, “claims involving residential rental units are a type of claim recognized under the statute….,” the court found that the plaintiffs' overcharge and the alleged “frivolous litigation do not amount to 'consumer-oriented' disputes affecting the public at large as required to fall within the ambit of GBL §349.” The court reasoned that rent stabilized tenants “enjoy these rights not because of [their] status as a consumer of housing services, but rather because of these prescribed statutory protections which were triggered when each Plaintiff executed his or her vacancy lease.” The court further opined that, even if “A's” “misrepresentation of the legality of the monthly rent…may be deemed a deceptive act, plaintiffs' claims are distilled to violations of rent stabilization statutes and regulations related to their specific tenancies rather than wrongs directed at the consuming public.” Thus, the court dismissed the GBL §349 claims and awarded overcharge and treble damages.

Champagne v. Piller, Sup. Ct., Kings Co., Index No. 505268/16, decided Jan. 12, 2018, Wade, J.

Landlord-Tenant—Eviction Based on Unlawful Activity in Federally Subsidized Housing Project

A Justice Court awarded the landlord possession in a holdover summary proceeding, based on the tenant's unlawful conduct. The Appellate Term (court) affirmed.

The tenant occupied an apartment in a federally subsidized housing project subject to the rules and regulations promulgated by the U.S. Department of Housing and Urban Development. The subject lease barred “'drug-related criminal activity' on or near the premises…, and provided that landlord may terminate the lease” based on the “tenant's 'material noncompliance' with the lease terms.” The tenant had been arrested in the premises for selling drugs. The landlord thereafter served a termination notice and commenced the subject holdover proceeding.

A landlord witness testified as to numerous complaints by neighbors, “that vehicles and persons had been arriving at tenant's premises at all times of day and departing after brief periods.” The police had been notified. Police documents, which had been admitted into evidence, confirmed that an investigation had led to the “execution of a search warrant at tenant's premises, which was preceded by a controlled buy of heroin at the premises by a confidential informant.” The police found “several types of controlled substances, including heroin and marihuana,…, several weapons, including a firearm,…and 17 empty 'wax envelopes' which, the report stated, were identified as of a type commonly used 'in the packaging and distributing [of] narcotics such as heroin [collectively referred to as drug paraphernalia],'” in the apartment.

The court found that the tenant had received proper service of a notice of termination and the notice allegations had “enough specificity so as to enable the tenant to prepare a defense”

The landlord had the burden of establishing, “by a preponderance of the evidence, that tenant had engaged in drug-related criminal activity, defined as 'the illegal manufacture, sale, distribution, or use of a drug, or possession of a drug with intent to manufacture, sell, distribute or use the drug'….” A landlord witness testified as to the numerous neighbor complaints about “numerous vehicles…coming onto the property for very brief periods of time…in the area of [tenant's] apartment, and cars and people in and out of the apartment at random hours, constantly.” The “police report contained factual allegations, based on personal knowledge by members of the police team that had executed the search warrant,” that “the search produced [drug paraphernalia],” heroin and “evidence of trafficking in controlled substances.” An officer testified on the basis of his training and experience, that the packaging material was commonly used for narcotics “'such as heroin.'”

Although the defendant had objected to the admission of the police report, the defendant had not cited specific grounds for the objection. “A police report is admissible as a business record if the report is 'based upon the officer's personal knowledge and while carrying out police duties.'” The court held that to the extent that the report was based on personal knowledge, it “sufficed to support the final judgment, and to the extent that any portion of the report represented inadmissible hearsay, there was no objection on that ground….”

The court rejected the tenant's argument that “a single drug-related incident that is not proved to have also 'threaten[ed] the health, safety, or right to peaceful enjoyment of the premises by other tenants' is insufficient to establish a lease violation.” The court explained that “42 USC §1437d (l) (6) requires that public housing authority leases 'provide that any criminal activity that threatens the health, safety, or right to peaceful enjoyment of the premises by other tenants or any drug-related criminal activity on or off such premises, engaged in by a public housing tenant, any member of the tenant's household, or any guest or other person under the tenant's control, shall be cause for termination of tenancy.'” The tenant's argument ignored “the use of the disjunctive 'or' in 42 USC §1437d (l) (6) and related provisions” and was also “contrary to the statute's general construction.” Accordingly, the court affirmed.

Comment: Since a breach of lease case is a civil case, courts may predicate their decisions in these types of cases, on a preponderance of the evidence and the lack of a criminal conviction is not a defense. These cases sometimes lead to the eviction of innocent parties with whom the offending tenant or occupant resided. However, in many of these situations, the nature and extent of the evidence makes it evident that other occupants of the apartment knew or should have known about the illegal activity. The law recognizes the need to not only consider interests of the tenants and occupants who live in the offender's apartment, but also the safety and well being of the innocent neighbors.

Haverstraw Pres. v. Diaz, App. Tm., 2nd Dep't, 9th & 10th Judicial Districts, Case No. 2016-343ROC, decided Jan. 18, 2018, Marano, P.J.; Brands and Ruderman, JJ. concur.

Landlord-Tenant—Rent Stabilization—Rent Overcharges—Buildings Receiving RPTL §421-g Benefits Are Subject to Luxury Decontrol, Unlike Buildings That Receive Benefits Under RPTL §421-a

A trial court had entered an order which, inter alia, denied the defendant's motion for summary judgment, granted the plaintiffs' cross motion for partial summary judgment, declared that “plaintiffs' apartments are subject to rent stabilization, and ordered that a special referee be designated to hear and determine the amount of overcharges and the amount of attorneys' fees and costs incurred by plaintiffs in litigating this action….” The Appellate Division (court) reversed and denied the plaintiffs' cross motion and granted the defendant's motion for summary judgment to the extent of declaring that plaintiffs' apartments were properly deregulated and are not subject to rent stabilization. The court vacated the orders as to the special referee and remanded the matter for further proceedings.

The court explained that “[e]xcept for condominiums and cooperatives, dwellings in buildings that receive tax benefits pursuant to Real Property Tax Law” (RPTL) “§421-g are subject to rent stabilization for the entire period the building is receiving 421-g benefits….” However, the court stated that “421-g buildings are subject to the luxury vacancy decontrol provisions of Rent Stabilization Law of 1969…unlike buildings that receive tax benefits pursuant to RPTL §§421-a and 489.”

The court found that RPTL § 421-g did “not create another exemption to Rent Stabilization Law § 26-504.2 (a).” The court opined that the trial court had “essentially interpreted [RPTL] §421-g (6)'s prefatory phrase 'Notwithstanding the provisions of any local law for [rent stabilization]' to mean 'Notwithstanding [the luxury decontrol] provisions of any local law.'” The court explained “[a] statute or legislative act is to be construed as a whole, and all parts of an act are to be read and construed together to determine the legislative intent….” The court then held that “the prefatory phrase, which also appears identically in RPTL 421-a (2) (f), must be read in tandem with the coverage clause of that section. The prefatory phrase and the coverage clause were both necessary to extend rent stabilization to certain dwellings in buildings receiving 421-g benefits.”

The court observed that “if 421-g buildings are subject to luxury vacancy decontrol, then most, if not all, apartments in buildings receiving 421-g benefits would, in fact, never be rent-stabilized, because the initial monthly rents of virtually all such apartments were set, as here, at or above the deregulation threshold.” The court reasoned that “courts should construe statutes to avoid 'objectionable, unreasonable or absurd consequences.'” Moreover, the court found that “the legislative history…demonstrates that the legislature was aware of such consequences during debate on the bill that enacted [RPTL] §421-g.”

The plaintiffs had also argued that “a dwelling in a building receiving 421-g benefits cannot be deregulated upon the setting of the initial rent at or above the deregulation threshold.” They contend that the rent-stabilized dwelling could not be “deregulated unless it is first registered as a rent-stabilized apartment.” However, the court had recently rejected that argument in a prior decision.

Comment: Sherwin Belkin, of Belkin Burden Wenig & Goldman, co-counsel with Holwell Shuster & Goldberg, represented the owner and stated that the legislative intent made it clear in enacting RPTL 421-g, unlike J51 and 421-a, “luxury deregulation is not barred.”

Serge Joseph, of Himmelstein, McConnell, Gribben, Donoghue & Joseph, counsel for the tenants, advised that leave to appeal to the Court of Appeals was granted. Joseph asserted, inter alia, that RPTL §421-g language is clear that the legislative intent supports his client's position.

Kuzmich v. 50 Murray St. Acquisition, App. Div., 1st Dept, Index No. 155266/16, decided Jan. 18, 2018, Acosta, P.J., Sweeny, Gische, Andrias, JJ. All concur.

Scott E. Mollen is a partner at Herrick, Feinstein.