In 1998, the garages were demolished. The owner also appealed the PAR in an Article 78 to the Supreme Court whose job was to determine whether the PAR decision was arbitrary or capricious. The court first noted that it is DHCRþs job to determine what is a required service under the Rent Stabilization Code, and whether that service has been maintained. The court noted that þrequired serviceþ also includes ancillary services, including garage facilities. In a prior Court of Appeals case, it was held that garages were required services where there is common ownership of the rent stabilized building and the parking garage. The court found that in this case the garages are required services. The burden, therefore, was on the owner to show why it was necessary to decrease this service. The court upheld the DHCRþs decision that the owner failed to prove that the garage could not be rehabilitated or replaced if demolished, that it was cost prohibitive to do so, and that the proposed parking lot would be an adequate substitute. Further, the ownerþs evidence to the DHCR was contradictory. The owner failed to show the actual cost of repair or replacement and only supplied an unsubstantiated estimate and failed to establish that an open parking lot would provide the tenants with an adequate level of services. Rather the owner stubbornly insisted on demolition and its evidence was directed to that avenue. The court denied the ownerþs Article 78 to reverse the DHCRþs decision.

When the landlord brought an eviction action the tenant switched gears and claimed he was protected by the Loft Law as a loft tenant. The landlord tried to argue that only the Loft Board can hear a coverage claim and that the Loft Boardþs deadline for coverage applications expired. The court rejected this argument, holding that it has concurrent jurisdiction with the Loft Board to determine coverage applications and that no statute of limitations applied to coverage defenses exists for the court. The court proceeded with an analysis of the three elements a loft tenant must show to receive Loft Law status, and determined that this tenant satisfied each provision. Those provisions include whether all or portions of a building were occupied for commercial purposes. Further, the building lacks a certificate of occupancy for a multiple dwelling (i.e., 3 or more residential units), because this buildingþs certificate of occupancy only cites 2 residential units. The tenant also proved that the building was in fact occupied by three or more residential tenants for the requisite time period. The court rejected landlordþs argument that tenant waited far too long to seek protection of the Loft Law. The court held that tenantþs delay is excused by þits understandable reliance on DHCRþs initial orders that he was a rent controlled tenant.þ The court referred ancillary matters to the Loft Board, such as setting the first rent for the premises and increases, if any, for code compliance costs.

The defendant attorneys argued that since the tenant failed to raise an FDCPA claim in Housing Court, he is barred from bringing an FDCPA suit in federal court involving the same three day notice which formed the basis of the nonpayment proceeding. The tenant argued that he couldn't bring an FDCPA counterclaim in Housing Court because that court lacks jurisdiction to hear this type of claim. The federal judge, however, disagreed and pointed to section 204 of the New York City Civil Court Act which grants the Civil Court jurisdiction over "any counterclaim for money only." The judge also pointed to RPAPL 731 which states that when a tenant is sued for rent, and if the tenant fails to "interpose and establish any defense that he may have, he may be precluded from asserting such defense or the claim on which it is based in any other proceeding or action." The court also noted that since the tenant is an attorney, he should have known to assert the FDCPA defense in Housing Court in response to the nonpayment proceeding. The judge noted that New York does not have a compulsory counterclaim rule, but held that "a party cannot remain silent as a party in one action while he is a party in a second action, seeking relief inconsistent with the judgment of the first action under a different legal theory." The court therefore dismissed the FDCPA claim on grounds of res judicata.

In determining whether two nonadjacent apartments constitute a single residence, the court noted that several factors are examined, including the tenantþs intent þwhich is manifested in the tenantþs usage of the apartment.þ Another factor is landlordþs knowledge and acquiescence in the arrangement. Courts have held that a landlord in these situations takes the premises subject to any waiver of rights made by a predecessor owner. In this case, the court concluded that the tenant proved that he used both apartments as his primary residence for over 30 years, except for the 5-month period he didnþt have possession of 5S. The court also acknowledged prior landlordsþ knowledge and acquiescence in the arrangement, as testified to by the tenant. Further, the tenantþs unique home was featured in House and Garden magazine in 1983 and that the tenant gave a copy of the magazine to each landlord, including the current landlord. The court dismissed the landlordþs argument regarding the tenantþs tax deductions for 5S as a possible over-deduction, but not determinative of the primary residence issue. Tenant raised the missing witness charge, which holds a negative inference if a person who should be a witness is not called. In this case, the super of the building has held his position since the late 1960s, yet the landlord did not call him to the witness stand. The permissible inference is that the super could not rebut the tenantþs testimony and that his testimony would not have been favorable to the landlord. For all these reasons, the court found for the tenant that 5N and 5S constitute his single home and he did not engage in nonprimary residence activity.

The landlord also never gave the specified notice in each of the tenant's renewal leases during the tax benefit period. The landlord argued that it could not provide such a notice because by doing so the landlord would vary the terms of the initial lease and this is not permitted under the Rent Stabilization Code, section 2522.5. The court, however, noted that section 2522.5 contains an exception at paragraph (g), which requires a change to the original lease "to comply with a specific requirement of law or regulation" relating to Rent Stabilized housing. As noted, various laws required that notification language be included in each renewal lease. The court also noted that the notice warns and alerts tenants that their stabilization status expires at the end of the renewal lease, and therefore, such a notice is for the purpose of protecting tenants and its inclusion would be permissible even if section 2522.5 did not explicitly authorize such language. Since the statute prohibits destabilization unless specific steps are taken, such as the notice provisions in the renewal leases, and since the landlord failed to take those steps, the landlord cannot deregulate the apartment and the tenant remains protected by the rent stabilization laws.

Morningside's then attorney, Marcia P. Hirsch, wrote to a pro bono attorney who had been representing Fuentes' husband regarding the basement apartment. The attorney suggested that Ms. Hirsch contact the Legal Aid Society. Instead, in 1990 Ms. Hirsch wrote to the husband directly and offered to relocate him and his family to a larger apartment. The husband had moved out and Fuentes responded by agreeing to relocate from the basement to the upstairs apartment pursuant to a "sublease" with the landlord Morningside. Morningside was designated as the "tenant" of the apartment. When Fuentes did not move at the end of the sublet, Morningside brought a holdover proceeding which was settled by an additional one-year sublease expiring on 1995. Legal Aid represented Fuentes in this matter, but none of the attorneys addressed the issue of whether Fuentes retained rent stabilization rights when she relocated from the basement apartment to Apartment 3.

In 1995, when Morningside bought a second holdover proceeding stating that the apartment was not rent stabilized, Fuentes went to Supreme Court for a declaration of her rights. Morningside claims that Fuentes knowingly waived her rights as a stabilized tenant when she relocated voluntarily in order to avoid being evicted from the illegal basement apartment. In other words, better something, even if not rent stabilized, than nothing. She also waived any stabilization rights when her attorneys agreed to extend the sub-lease. Before discussing waiver, the Court first discussed the issue that Fuentes remained in the apartment as a non-purchasing tenant under the Martin Act. At the time the plan was deemed effective in 1986, Fuentes was a rent-paying tenant entitled to possession in the basement apartment which would allow her to retain rent stabilization rights. In another matter, the Appellate Division recently ruled in Libani v. Concorde & CIE, that stabilized tenants who were relocated to another unit under an interim lease during a conversion, and who failed to purchase, could not be evicted and that they retained rent stabilized rights since the offering plan provided that a nonpurchasing tenant would not be evicted upon the expiration of the lease. The Court found that Fuentes had similar rights as in Libani, and that she may not be evicted based on her failure to purchase the shares or because the so-called sublease expired.

In analyzing the waiver argument, the Court relied on a Court of Appeals case for the principle that waiver of rent regulated status might not hold if the exchange was not wholly voluntary if it benefitted the landlord. Fuentes' move to Apartment 3 benefitted the sponsor because the super moved to Fuentes' former basement apartment, freeing up the super's apartment to be sold as a condo unit. Further, Fuentes' move out of the basement cured the illegality of the basement unit with children in it. Although Fuentes may have benefitted by getting a larger apartment, she might not have made the move had she known she would lose her stabilization rights. The initial sublease from attorney Hirsch failed to advise Fuentes of such a loss. The Court acknowledged that Fuentes' pro se attorney acted "improvidently" in extending the sublease by one year, but the Court noted that Fuentes had already moved and that the stipulation contained no explicitly reference to waiver of the Rent Stabilization Law. Thus, the Court refused to infer that Fuentes had knowingly waived her right to rent stabilized protection, as "such a finding would violate this state's public policy against waiver of rent protection." The court rendered an order declaring Fuentes the rent stabilized tenant.

The court held that the receiver was appointed before the 7A proceeding commenced and in fact has been registered with HPD as an "owner." Under these circumstances, the 7A proceeding should be stayed pending an application by HPD to the Supreme Court for permission to continue with the 7-A. In reaching this result, the court relied on another case which held that the 7-A proceeding "would directly affect the res [i.e., property] which the receiver is bound to protect." The court gave HPD 30 days to seek the Supreme Court's permission to maintain the 7-A action.

The plaintiff brought this action to recover the use and occupancy he claims he should not have had to pay since the premises were not habitable. The landlord argued that the warranty of habitability does not extend to a mere roommate, but only to lease holders. The court noted that the plaintiff could have raised the issue of the habitability during the holdover proceeding to off-set the use and occupancy plaintiff was ordered to pay, but that there is nothing in the record to indicate that plaintiff made such a request to the judge. The court ruled that a mere occupant of an apartment does not have the same rights, such as a warranty of habitability, as a leaseholder has, finding that the obligation to pay rent is a "prerequisite" to the right to assert a claim pursuant to RPL 235-b, the warranty of habitability law.