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Casado v. RGB - Reversed on Appeal

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Casado v. RGB - Reversed on Appeal

Postby TenantNet » Fri Oct 22, 2010 11:38 am

Judge finds city rent increases invalid
New York Post
by Dareh Gregorian
January 25, 2010

The city Rent Guidelines Board has overcharged hundreds of thousands of tenants since October of 2008, a Manhattan judge has ruled.

In a decision issued today, Manhattan Supreme Court Justice Emily Jane Goodman found the RGB improperly created a new housing class when it set fixed dollar increases - as opposed to traditional percentage increases - for 300,000 leases where apartments were renting for under $1000 a month.

A "court should not permit a quasi-legislative agency, with a nine member board, appointed by the Mayor of New York, to perform a function originally designated to the [City Council]," which enacted the rent stabilization law, Goodman wrote.

The ruling potentially paves the way for those tenants to seek millions in dollars in refunds. An exact dollar figure was not available, but the RGB predicted it would effect "both tenants and landlords throughout the city," and that untangling the amount of overcharges would create an "administrative burden."

Goodman countered that "any financial burden . . . cannot outweigh a court’s duty to invalidate any act taken in excess of statutory authority," and that the RGB had overstepped its bounds and created an inequitable system.

While the RGB set a maximum increase of 4.5 percent for one year leases and 8.5 percent for two year leases in 2008, it also unveiled a new formula for apartments renting for under $1000 a month to make it more equitable for landlords.

The new formula said landlords could charge whichever rents was higher for those apartments - a 4.5 percent increase or a $45 a month increase for one-year renewals, or an 8.5 percent or $85 a month for two year renewals.

"Hence, petitioner Mercedes Casado, who commenced her tenancy in 1992 and was paying $739.31 a month in rent at the time the petition was filed, is subject to an $85 or an 11.5% rent increase on January 1, 2009. Petitioner Paul Hertgen was paying $685 a month for his Staten Island apartment, and, as of October 1, 2008, his rent will be increased to $770, which is a 12% increase. Thus, the effective percentage increase for long-term tenants is nearly double the increases for short-term tenants," the judge noted.

In effect, she wrote, it "penalizes tenants for failing to move in a city that has virtually no affordable housing."

The city's top lawyer, Corporation Counsel Michael Cardozo, said they would appeal the ruling and ask for a stay until they get to present their case to the higher court.

"We respectfully but strongly disagree with the decision. We are especially disappointed that it has taken the court over a year to issue a ruling relating to 2008 rents that will cause confusion for thousands of rent-regulated tenants and owners throughout the City," Cardozo said.

"We intend to appeal, and will seek to ensure that the ruling does not go into effect until the appeal has been decided."
Last edited by TenantNet on Thu Mar 24, 2011 1:53 pm, edited 2 times in total.
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Postby TenantNet » Fri Oct 22, 2010 11:40 am

Ruling Could Mean Lower Rents for 300,000
New York Times
by Cara Buckley
January 25, 2010

To most renters in New York City, it sounds like a modest, even enviable, rent increase: Pay an additional $45 if your monthly rent happened to be less than $1,000 and you had been living in the same apartment for more than six years.

But to the City Council, and advocates for New York’s lower-paying tenants, the increase issued by the city’s Rent Guidelines Board in 2008 amounted to what they called a “poor tax.” And in a ruling last week, Justice Emily Jane Goodman of State Supreme Court in Manhattan agreed. Should the ruling stand ­ the city plans to appeal it ­ some 300,000 rent-stabilized tenants could receive rebates and small reductions in their rent.

The ruling stemmed from the rent increases approved by the city’s Rent Guidelines Board in 2008. The board allowed landlords of rent-subsidized apartments to raise rents by 4.5 percent for one-year leases, and 8.5 percent for two-year leases.

The board also passed a minimum increase for anyone who had been living in an apartment for more than six years: They would have to pay at least $45 and $85 for one- and two-year leases, respectively. This meant that any long-term tenant paying less than $1,000 a month would be faced with a higher percentage increase than other rent-stabilized tenants. The rule was called Order No. 40.

The motivation behind the board’s increase was to compensate landlords for rising operational costs and to equalize rents between long- and short-term tenants, according to court papers. But the City Council and some Legal Aid lawyers cried foul, claiming in a September 2008 lawsuit that lower-income tenants were being unfairly singled out.

In her decision siding with the plaintiffs, Judge Goodman ruled that the Rent Guidelines Board did not have the authority to impose a separate rent increase for those tenants. She cited the case of Paul Hertgen, an out-of-work truck driver who had been living in the same apartment on Staten Island for 18 years. Under the new guidelines, his rent rose to $770 from $685, a 12 percent increase. Had he been subject to the 8.5 percent increase that others were required to pay, his rent would have been $743.

“The effective percentage increase in long-term tenants is nearly double the increases for short-term tenants,” Justice Goodman wrote, “In other words, Order No. 40 penalizes tenants for failing to move in a city that has virtually no affordable housing.”

Anthony Hogrebe, a spokesman for the City Council, said landlords would have to reimburse the tenants who had paid the extra increase. But any repayments or rent decreases would most likely be delayed.

“We respectfully but strongly disagree with the decision,” said Michael A. Cardozo, the city’s corporation counsel, whose office represented the Rent Guidelines Board. “We are especially disappointed that it has taken the court over a year to issue a ruling relating to 2008 rents that will cause confusion for thousands of rent-regulated tenants and owners throughout the city. We intend to appeal, and will seek to ensure that the ruling does not go into effect until the appeal has been decided.”
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Matter of Casado v Markus

Postby TenantNet » Fri Oct 22, 2010 11:46 am

Matter of Casado v Markus

2010 NY Slip Op 20029
Decided on January 20, 2010

Supreme Court, New York County
Goodman, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.


Decided on January 20, 2010
Supreme Court, New York County

In the Matter of the Application of Mercedes Casado, PAUL HERTGEN, and NEW YORK STATE TENANTS AND NEIGHBORS COALITION, INC., Petitioners, For Judgment Pursuant to Article 78 of the Civil Practice Law and Rules,

against

Marvin Markus, as Chair of the New York City Rent Guidelines Board and the NEW YORK CITY RENT GUIDELINES BOARD, Respondents.

402267/08

Emily Jane Goodman, J.

Motion sequence nos. 001 and 002 are hereby consolidated for disposition.

Motion sequence no. 001 is a special proceeding, brought pursuant to CPLR Article 78, to annul and vacate a portion of the "2008 Apartment and Loft Law No.40" (Order No. 40) promulgated by the respondent New York City Rent Guidelines Board (RGB). Order No. 40 sets guidelines for rent increases on rent-stabilized apartments in New York City commencing October 1, 2008. In motion sequence no. 002, the New York City Council seeks leave to file a memorandum of law as amicus curiae in further support of the petition.

This proceeding presents an interesting issue: whether the RGB may enact a minimum dollar increase for long-term tenants­--when the City Council, as the lawmaking body which enacted the New York City Rent Stabilization Law (RSL), which created the RGB, maintains that the RGB has overstepped its authority and acted ultra vires.

BACKGROUND

Order No. 40 provides, inter alia, for maximum rent increases for leases subject to renewal on or after October 1, 2008 and on or before September 30, 2009 as follows: 4.5% for one-year leases and 8.5% for two-year leases for apartments where heat is provided, and 4% for one-year leases and 8% for two-year leases where heat is not provided. Order No. 40 further provides for a minimum dollar increase applicable to apartments where the most recent vacancy [*2]lease was executed six years or more prior to the date of the renewal lease subject to Order No. 40 (minimum dollar increase). These tenants are also to pay increases of 4.5% or $45, whichever is greater, or $8.5% or $85, whichever is greater, for one-year and two-year lease renewals for apartments where heat is provided. Where heat is not provided, the increases are 4% or $40, whichever is greater, for one-year leases, and the greater of 8% or $80 for two-year leases. Petitioners do not challenge that portion of Order No. 40 allowing for differentials based on whether the building owner provides heat.

The minimum dollar increase only affects tenants paying less than $1,000 a month in rent. Hence, petitioner Mercedes Casado, who commenced her tenancy in 1992 and was paying $739.31 a month in rent at the time the petition was filed, is subject to an $85 or an 11.5% rent increase on January 1, 2009. Petitioner Paul Hertgen was paying $685 a month for his Staten Island apartment, and, as of October 1, 2008, his rent will be increased to $770, which is a 12% increase. Thus, the effective percentage increase for long-term tenants is nearly double the increases for short-term tenants; in other words, Order No. 40 penalizes tenants failing to move in a city that has virtually no affordable housing.[FN1]

Petitioners maintain that the RGB is prohibited from creating "classes of housing accommodations" subject to different guideline adjustments, because the power to make such classes lies exclusively with the City Council, who has not created classes of accommodation for long-term versus short-term tenancies. As the City Council argues in its amicus brief,[FN2] the RGB overstepped its authority under the RSL and ETPA, because those statutes only authorize the RGB to issue rent orders for "classes of accommodations" previously identified by the City Council as housing accommodations for which a housing shortage exists. Since the City Council has declared a housing emergency for "all" classes of accommodations within New York City, and the only units of housing identified by the City Council for separate treatment are long-term rental units in hotels, the City Council argues that the RGB may not identify another class of properties and set a separate rate increase for that class. This is especially true, the Council argues, given that when it adopted the RSL, it emphasized that longstanding tenants must be protected, and that policy is acknowledged by the RGB on its website. While the City Council acknowledges that under the Local Emergency Housing Rent Control Act, enacted in 2003, the State legislature restricted the Council's authority over the future creation of "classes of accommodations," the City Council points out that there would be no need to restrict the Council, if the power was not originally vested within it, as opposed to the RGB.

Petitioners also argue that the RGB's adoption of the minimum dollar increase is in conflict with both Section 26-516 (a) (2) of the RSL and Section 2526.1 (a) (2) (ii) of the New York City Rent Stabilization Code (RSC). Petitioners argue that this local law and regulation [*3]preclude an examination of an apartment's rental history more than four years in the past when the New York State Division of Housing and Community Renewal (DHCR) or the courts seek to determine the lawful rent for a rent-stabilized apartment. Further, petitioners contend that the RGB failed to file adequate findings to support its adoption of the minimum dollar increase in violation of RSL § 26-510 (b), which requires the RGB to consider factors such as the economic conditions of the real estate industry and data on the current and projected cost of living for the affected area, and thus, that Order No. 40 is arbitrary and capricious and an abuse of discretion.

Both petitioners and the City Council rely also on Matter of New York State Tenants & Neighbors Coalition, Inc. v Nassau County Rent Guidelines Bd. (53 AD3d 550 [2d Dept 2008]). There, the Second Department ruled that the Nassau County Rent Guidelines Board did not have the authority to create a separate rate adjustment guideline based on tenant income, because that constituted creation a "separate class of accommodation" which could only be created by the local legislature.

In opposition to the petition, the RGB contends that this proceeding is barred by laches, because Order No. 40 was adopted on June 19, 2008, and petitioners waited until September 15, 2008 ­ two weeks before the new guidelines went into effect on October 1, 2008 ­ to file this petition. On the merits, the RGB contends that based on 2003 amendments to the ETPA, the City Council is specifically precluded from adopting laws with respect to the classification of housing accommodations, and may only remove a housing accommodation from rent regulation. Accordingly, it reasons that it has the statutory authority to make classes of accommodation, which comply with RSL §26-510 (b). However, as a result of the decision in Matter of New York State Tenants & Neighbors Coalition, Inc. v Nassau County Rent Guidelines Bd., the RGB concedes that it may not create classes of accommodation based on factors, such as the income of the tenants, that are not sufficiently connected to the housing accommodations themselves. The RGB argues that it has not created such an impermissible class of accommodation, as the challenged increase is not based on indicia regarding the tenants, but rather, indicia regarding the housing accommodations themselves. The RGB also relies upon Stein v Rent Guidelines Board for City of New York (127 AD2d 189 [1st Dept 1987] [two-tier vacancy increase allowance permitted under law]).

The RGB maintains further that the four-year statute of limitations for determining rent overcharge complaints, set forth in RSL § 26-516 (a) (2) and RSC § 2526.1 (a) (2), has nothing to do with the RGB's issuance of annual rent adjustment guidelines pursuant to RSL § 26-510 (b). Finally, the RGB contends that the 54-page Explanatory Statement accompanying Order No. 40 fully complies with RSL § 26-510 (b), and that the minimum dollar increase is rational and is intended to address the problem of skewed rents caused by long-term tenancies.

DISCUSSION

This proceeding, filed two weeks before Order No. 40 went into effect, and well within the four month statute of limitations, is not barred by laches. Laches is an equitable doctrine under which a petitioner guilty of a lengthy delay in vindicating rights will be barred from bringing an action or proceeding if the delay causes prejudice to the adverse party (see Saratoga County Chamber of Commerce, Inc. v Pataki, 100 NY2d 801, 816, cert denied 540 US 1017 [2003]; Matter of Schulz v State of New York, 81 NY2d 336, 348 [1993]). The general effect must also be considered (see Matter of Cantrell v Hayduk, 45 NY2d 925 [1978] [two month [*4]delay in filing an election ballot challenge injured Westchester County voters and justified dismissal of the petition on the basis of laches even though the petition was filed within the four month statute of limitations]; Matter of Adler v Office of Ct. Admin. of Unified Ct. Sys., 9 Misc 3d 1109(A) [Sup Ct, NY County 2005] [laches defense upheld where delay in challenging OCA reclassification was not only prejudicial to OCA, but would unseat over 150 court officers promoted to lieutenant], affd 35 AD3d 260 [1st Dept 2006]).

The RGB estimates that this minimum rent provision will effect an estimated 300,000 leases or 45% of those being renewed, and that annulling the guidelines, after their effective date, would effect both tenants and owners throughout the City, who have already entered into new leases. Further, the RGB argues that if the Order is vacated, it would place an additional administrative burden on DHCR, which presumably has made overcharge and other determinations, based on the Order.

These arguments are not persuasive. The challenge to Order No. 40 was brought before tenants and owners entered into renewal leases, and therefore, no person-or agency­could rely upon the assumption that the Order would be upheld. Moreover, any financial burden (economic laches)­ which has not been quantified­cannot outweigh a court's duty to invalidate any act taken in excess of statutory authority (see Saratoga County Chamber of Commerce, Inc. v Pataki, supra [defense of economic laches rejected where tribe profited from a predictably vulnerable contract, which deprived the legislature of its authority to act, and therefore, was void]; see also Abiele Contracting, Inc. v New York City School Constr. Auth., 91 NY 1, 10 [1997] [the jurisdiction of an administrative board or agency consists of powers granted to it by statute, and determinations made in excess of that authority is void]). Thus, this proceeding is not barred by laches.[FN3]

Although the RGB argues that the reason for the minimum dollar increase is rational, i.e., it is rational to attempt to equalize the rental amounts that long-term and short-term tenants pay, because the operating expenses for those apartments are the same, the minimum dollar provision of Order No. 40 cannot stand, as it was enacted, ultra vires.[FN4] [*5]

In 1969, in response to a public housing crisis, the City Council enacted the New York City Rent Stabilization Law (see Exhibits C and D of the Affirmation of Lauren G. Axelrod attached to motion seq 002). In 1974, the State Legislature enacted the ETPA, which authorized, as well as reaffirmed, that local legislative bodies, in New York City and surrounding counties, may declare a housing emergency for "all or any class or classes of accommodations" depending on vacancy rates. By Resolution 276 of 1974, the City Council implemented the EPTA.

Specifically, Section 3 of the EPTA provides, in relevant part, that

The existence of a public emergency requiring the regulation of residential rents for all or any class or classes of housing accommodations...shall be a matter for local determination within each city, town or village. Any such determination shall be made by the local legislative body of such city, town or village . . . A declaration of emergency may be made as to any class of housing accommodations if the vacancy rate for the housing accommodations in such class within such municipality is not in excess of five percent and a declaration of emergency may be made as to all housing accommodations if the vacancy rate for the housing accommodations within such municipality in not in excess of five percent. McKinney's Uncons Law of NY § 8623 (emphasis added).

Section 4 (c) of the EPTA provides that in "a city having a population of one million or more, the rent guidelines board shall be the rent guidelines board established pursuant to the New York city rent stabilization law of nineteen hundred sixty-nine as amended, and such board shall have the powers granted pursuant to the New York city rent stabilization law of nineteen hundred sixty-nine as amended." McKinney's Uncons Law of NY § 8624 (c) (emphasis added).

Thus, as provided above, the RGB only has the powers delegated to it pursuant to the "New York city rent stabilization law of nineteen hundred sixty-nine as amended." It is undisputed that when first enacted in 1969 by the City Council, the RSL applied only to Class "A" multiple dwelling units constructed after 1947, not owned as cooperatives or condominiums, and, that three months later, the City Council extended the law to hotels constructed prior to July 1, 1969.

The RSL provided for the RGB's powers in RSL § 26-510 (b), which provides, in pertinent part:

b. The rent guidelines board shall establish annually guidelines for rent adjustments, and in determining whether rents for housing accommodations subject to the emergency tenant protection act of nineteen seventy-four or this law shall be adjusted shall consider, among other things (1) the economic condition of the residential real estate industry in the affected area including such factors as the prevailing and projected (i) real estate taxes and sewer and water rates, (ii) gross operating maintenance costs (including insurance [*6]rates, governmental fees, cost of fuel and labor costs), (iii) costs and availability of financing (including effective rates of interest), (iv) over-all supply of housing accommodations and over-all vacancy rates, (2) relevant data from the current and projected cost of living indices for the affected area, (3) such other data as may be made available to it. Not later than July first of each year, the RGB must file with the City Clerk its findings for the preceding calendar year, and shall accompany such findings with a statement of the maximum rate or rates of rent adjustment, if any, for one or more classes of accommodations subject to this law, authorized for leases or other rental agreements commencing on the next succeeding October first or within the twelve months thereafter (emphasis added).

Notably, the language refers to setting "the maximum rate or rates of rent adjustment, if any" concerns those classes of accommodations "subject to this law." Although the City Council did not define "classes of accommodations" that does not mean, as Respondent maintains, that the RGB therefore has the power to determine the "classes of accommodations" which is, as Section 3 of the EPTA states, a matter for local determination. Nor does the lack of definition matter, in light of the fact that Respondent concedes that in 1974 the City Council found that an emergency existed for "all classes of accommodations" and that no classes are treated differently, other than long-term rental units in hotels. Although the Rent Law of 2003 (L 2003, ch 82, § 1) restricts the City Council's current authority to create classes of accommodations subject to rent stabilization (see Reply Memo. of Law of Proposed Amicus Curiae, dated Oct. 6, 2008, at 4), that does not mean that therefore, the RGB now has that power. The fact that the Rent Law of 2003 was enacted actually cuts the other way, as it is evidence that the New York State legislature, who authored the ETPA, believed that the City Council was originally granted that authority.[FN5]

The Second Department's decision in Matter of New York State Tenants & Neighbors Coalition (53 AD3d 550, supra), is further support for this Court's conclusion that the RGB may not impose a separate rent increase for a class of accommodation, not recognized by the City Council. The Second Department held that different rent increases cannot be based upon a tenant's gross aggregate family income, when Nassau County's legislature had not created any classes of accommodations, based on tenant income. The Second Department ruled that the county rent guidelines board did not "have the authority to create a separate rent adjustment guideline based on tenant income" because classes of accommodation are created "in the first instance, by the legislative body of the relevant city, town or village under EPTA §3 (id. at 551) .[FN6] As a result of this decision, the RGB concedes that it may not create classes of accommodation based on factors, such as the income of the tenants, that are not sufficiently connected to the housing accommodations themselves. Although the RGB maintains that the [*7]challenged increase is not based on indicia regarding the tenants, but rather, indicia regarding the housing accommodations themselves, that distinction cannot overcome the fact that the City Counsel, not the RGB, had the power to create separate classes.[FN7]

In any event, where the power conferred by statutory language is not free from doubt, the power may not be taken by implication (New York v Prendergast, 202 AD 308, 316 [1st Dept 1922]). As the RGB's power is in doubt, a court should not permit a quasi-legislative agency, with a nine member board, appointed by the Mayor of New York, to perform a function originally designated to the legislative body, which enacted the RSL.[FN8]

It is hereby

ORDERED that the motion of the New York City Council seeking leave to file a memorandum of law as an amicus curiae in further support of the petition (seq. no. 002) is granted; and it is further

ORDERED that the petition (seq. no. 001) to vacate a portion of the 2008 Apartment and Loft Law #40, regarding the minimum dollar increase is granted, without costs and disbursements, and the parties are directed to settle judgment.

This Constitutes the Decision and Order of the Court.

Dated: January 20, 2010

ENTER:

___________________________
J.S.C.

Footnotes

Footnote 1:The economic conditions of the tenants is not a consideration in this proceeding. However, the Court notes that Petitioners are represented by the Legal Aid Society, thereby attesting to their indigency. The Court also notes that by virtue of the involvement of long-term tenancies, many of the tenants are likely to be Senior Citizens.

Footnote 2:The Court appreciates the submission of the amicus curiae brief, as it was the one most helpful to the Court.

Footnote 3:A similar challenge has been recently brought under Order No. 41, and the parties therein have agreed by stipulation, dated November 9, 2009, to be bound by this decision (see New York State Tenants And Neighbors Coalitions, Inc. v New York City Rent Guidelines Board, Index Number 114718/09). Accordingly, as the disputed issue is reoccurring, it is important to reach the merits.

Footnote 4:The 54-page Explanatory Statement accompanying Order No. 40 complies with the requirements of RSL § 26-510 (b). Petitioners argue that the sole portion of the Explanatory Statement relating to the minimum dollar increase is a 21-page memorandum prepared by the RGB's staff, and only released to the RGB the morning of June 19, 2008, the very day of the final vote. Accordingly, petitioners argue that this document could not possibly have been considered, much less adopted by the RGB prior to its vote on the final order. However, at the June 19th public meeting of the RGB (R. 2672-2730), a vote was taken at the request of Director Holder to adjourn the meeting to more fully consider this memorandum, and the motion was defeated by a vote of 7-2 (R. 2697). Seven members of the RGB did not believe that an adjournment was necessary to vote on a minimum dollar increase. Director Adams stated that the memorandum did not raise any issues that had not been discussed and testified about previously (R. 2694-9). According to the memorandum itself, a significant amount of testimony was received by the RGB during the last two months of the guideline process on the subject of promulgating a guideline that provides for a minimum dollar amount of rent adjustment tied to the length of a tenant's tenure (see R. 2650, 2739, 2740).

Footnote 5:Although not the issue here, after 2003, the State legislature would have to create any classes of accommodation.

Footnote 6:The factors to be considered by the Nassau County Rent Guidelines Board are set forth in ETPA § 4 (b) (McKinney's Uncons Laws of NY § 8624 [b]), and are identical to the factors set forth in RSL § 26-510 (b) that the RGB must consider each year.

Footnote 7:Moreover, it cannot be said that the minimum dollar increase does not relate to tenants, as it relates the tenant's choice to remain in the apartment.

Footnote 8:Stein v Rent Guidelines Board for City of New York (127 AD2d 189 [1st Dept 1987]), does not dictate a different result. Although the First Department does not appear to have addressed the "classes of accommodations" arguments raised herein, it appears that a two-tier vacancy increase, which does not regulate tenants in occupancy, does not create impermissible, separate classes of accommodation.
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Casado v Markus: Appellate Division, 1st Department affirmed

Postby TenantNet » Fri Oct 22, 2010 11:49 am

http://www.nycourts.gov/reporter/3dseri ... _05470.htm

Matter of Casado v Markus
2010 NY Slip Op 05470

Decided on June 22, 2010
Appellate Division, First Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on June 22, 2010
Gonzalez, P.J., Andrias, Catterson, Renwick, Manzanet-Daniels, JJ.

3095 402267/08

[*1]In re Mercedes Casado, et al., Petitioners-Respondents,

v

Marvin Markus, as Chair of the New York City Rent Guidelines Board, et al., Respondents-Appellants. Rent Stabilization Association of NYC, Inc., Community Housing Improvement Program, Inc., and The Council of the City of New York, Amici Curiae.


Michael A. Cardozo, Corporation Counsel, New York (Fay Ng
of counsel), for appellants.

Steven Banks, The Legal Aid Society, New York (Ellen
Davidson of counsel), for respondents.

Rosenberg & Estis, P.C., New York (Jeffrey Turkel of
counsel), for Rent Stabilization Association of NYC, Inc. and
Community Housing Improvement Program, Inc., Amici Curiae.
Elizabeth R. Fine, New York (Lauren G. Alexrod of counsel),
for The Council of the City of New York, Amicus Curiae.

Judgment, Supreme Court, New York County (Emily Jane Goodman, J.), entered February 2, 2010, in an article 78 proceeding, vacating Rent Guidelines Board Orders Nos. 40 of 2008 and 41 of 2009 insofar as they provided for minimum dollar rent increases for rent stabilized apartments renting for less than $1,000 that had not been subject to vacancy increases for the preceding six years, unanimously affirmed, without costs.

Under the Emergency Tenant Protection Act of 1974 (McKinney's Unconsolidated Laws of NY § 8621 et seq.), the Council of the City of New York is empowered to regulate the rents of housing accommodations subject to the New York City Rent Stabilization Law (Administrative Code of City of NY § 26-501 et seq.). The New York City Rent Guidelines Board was created pursuant to that statutory authority and, under Rent Stabilization Law § 26-510(b) (tracking ETPA § 8624[b]), is authorized to annually adjust the "maximum rate or rates of rent" for rent stabilized units. In so doing, the Rent Guidelines Board is necessarily subordinate to the City Council, which is vested by the State with the exclusive power to promulgate local rent regulations. Although the City Council has the power to establish classifications of housing accommodations, and, if deemed necessary, to thereby allow for differentiations of rental treatment, it has not done so. It does not follow, however, that the Rent Guidelines Board may, in effect, step into the breach, without express statutory authority or delegation by the City[*2]Council. By imposing minimum dollar rent adjustments based on tenant longevity and rental amount, the Rent Guidelines Board not only went beyond its authority to set maximum rent rates, but also impermissibly created a new class of rental accommodation, a policy determination exclusively reserved to the City Council (see EPTL 8623[a]; Matter of New York State Tenants & Neighbors Coalition, Inc. v Nassau County Rent Guidelines Bd., 53 AD3d 550 [2d Dept 2008]).

THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: JUNE 22, 2010

CLERK
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Court of Appeals reverses

Postby TenantNet » Thu Mar 24, 2011 1:51 pm

THIS DECISION IS UNCORRECTED AND SUB-JECT TO REVISION BEFORE PUBLICATION IN THE NEW YORK REPORTS.

In the Matter of Mercedes Casado, et al., Respondents,
v. Marvin Markus, & c., et al., Appellants.

No. 32

Court of Appeals of New York.

Fay Ng, for appellants.

Ellen B. Davidson, for respondents.

Rent Stabilization Association of New York City, Inc. et al.; The Council of the City of New York, amici curiae.

SMITH, J.:
Decided March 24, 2011

Petitioners challenge the validity of two orders of the New York City Rent Guidelines Board (RGB) that make a distinction between low-rent apartments in which there has been no recent vacancy and other apartments, allowing larger rent increases, in percentage terms, for apartments in the former category. We hold that the RGB has the power to make this distinction.

I

The RGB orders in issue here govern rent levels for the years ended September 30, 2009 and September 30, 2010. The two orders are identical in all relevant ways except for the amounts of the increases allowed. The parties focus on the first of the two, as will we.

The part of that order that concerns us sets out the rent increases permitted in renewal leases of apartments. It makes separate provision for apartments in which heat is provided by the landlord at no charge to the tenant, and those in which it is not; and it also distinguishes between one-year and two-year renewal leases. In each category, the order authorizes a percentage rent increase: for apartments where heat is provided, 4.5% for a one-year lease and 8.5% for a two-year lease; where heat is not provided, 4% for a one-year lease and 8% for a two-year lease.

However, "where the most recent vacancy lease was executed six years or more prior to the date of the renewal lease under this Order," the order makes the percentage increases subject to a dollar floor, calculated to affect apartments in which the old rent was less than $1,000 a month. For example, where heat is provided, the authorized increase in a one-year renewal lease is 4.5% or $45, whichever is greater; for a two-year lease it is 8.5% or $85, whichever is greater; and so forth. Thus, if the old rent on an apartment that had had no vacancy for six years or more was, say, $450, a landlord who provided heat and offered a one-year renewal lease could charge an additional $45-a 10% increase.

The RGB's purpose in taking this approach was to remedy what it saw as an inequity. Ordinarily, the permissible rent for a rent-stabilized apartment depends on the rent charged in the past, with relatively modest increases authorized annually by the RGB, and larger increases (or, at higher rent levels, decontrol) when the apartment becomes vacant. But the costs of maintaining an apartment and providing services to its occupant are often not in proportion to historical rents. Where the rent is relatively small and there is no vacancy for many years, the disproportion can become acute, with small annually-authorized increases that do not come close to covering increased costs. Those costs have to be paid somehow, so if percentage increases are uniform, the increases must be set at a level that allows landlords to make larger profits on the apartments that get larger increases, and to use those profits to pay the costs for the lower-rent apartments. In other words, tenants paying higher rents must subsidize those paying lower rents.

Perhaps that subsidy could be justified on the ground that tenants paying higher rents are generally wealthier. An analysis by the RGB staff, however, showed that the subsidy appears to be unfair even when tenant income is taken into account. The analysis (which excluded senior citizens receiving rent increase exemptions) showed that the median rent-to-income ratio for tenants living in their apartments six years or more was lower than the same ratio for all tenants-and would continue to be lower even if minimum increases in the range of those at issue here were imposed. The RGB therefore decided to adopt the minimums.

This case began as two CPLR article 78 proceedings, one relating to each of the RGB's orders; the proceedings have been consolidated. Petitioners are two rent stabilized tenants, both of whom have lived in their apartments for more than six years and pay less than $1,000 a month in rent, and a tenants' rights organization. They seek to annul the orders to the extent they allow minimum dollar increases. Petitioners make no claim that the minimum increases are unreasonable or unfair, but assert that the RGB lacks the power to permit them.

Supreme Court granted the relief petitioners sought, and the Appellate Division affirmed ( Matter of Casado v. Markus, 74 AD3d 632 [1st Dept 2010] ). We granted leave to appeal, and now reverse.

II

Petitioners' primary argument is that the RGB has no power to create classes of housing accommodations-meaning, petitioners say, that the RGB is forbidden to draw any distinctions within any of the three "classes" of housing accommodations-apartments, hotel units and lofts-established by the New York City Council. Petitioners base this argument on two provisions of law: New York City Administrative Code § 26.510(b), which is part of the Rent Stabilization Law (RSL), originally enacted in 1969 by the New York City Council (Local Law No 16 [1969] of City of New York, codified as amended at NYC Admin Code § 26-501 et seq.); and section 3(b) of the Emergency Tenant Protection Act (ETPA), enacted by the State Legislature in 1974 (L 1974, Ch 576, § 4, codified as amended at Unconsolidated Laws § 8621 et seq.). At the same time it enacted the ETPA, the Legislature repealed and re-enacted the parts of the RSL relating to the RGB, making no relevant change in the language of § 26-510(b) (L 1974, Ch 576, § 9).

In its current form, section 26-510(b) authorizes the RGB to "establish annually guidelines for rent adjustments," and to file with the City Clerk annually "a statement of the maximum rate or rates of rent adjustment, if any, for one or more classes of accommodations" (N.Y.C Admin Code § 26-510 [b] ). ETPA § 3(b) says that in New York City "[t]he existence of [a] public emergency requiring the regulation of residential rents for all or any class or classes of housing accommodations ... shall be a matter for local determination ... by the local legislative body" (Unconsol Laws § 8623 [b] ). (The power given the New York City Council by this section of the ETPA was largely revoked by the State Legislature in 2003; see L 2003, Ch 82, codified at Unconsol Laws § 8605.) Petitioners claim that these enactments, read together, reserve the power to create "classes of housing accommodations" to the City Council exclusively, and that the City Council has not delegated and could not delegate to the RGB any power to draw distinctions between accommodations of the same class. Petitioners' argument does not persuade us.

On its face, the RSL does not prohibit the RGB from distinguishing some kinds of apartments from others. The language that empowers the RGB to establish "the maximum rate or rates of rent adjustment ... for one or more classes of accommodations" (N.Y.C Admin Code § 26-510[b] ) does not, as a simple matter of grammar, say or imply that there must be only one "maximum rate ... of rent adjustment" for each class. And the ETPA language that petitioners rely on (which has been in any event largely nullified by later legislation) has nothing to do with the issue before us. To say that a "local legislative body" may determine when a "public emergency" exists requiring rent regulation for "all or any class or classes of housing accommodations" (Unconsol Law § 8623 [b] ) is to say nothing at all about whether, or by whom, multiple levels of rent increases may be permitted within each class.

In fact, the RGB has always made some distinctions between apartments, even though apartments are generally considered one "class" of housing accommodation. Most obviously, the RGB prescribes different rental rates for one-year and two-year leases. Petitioners say that this is an exception to the general rule against the making of distinctions within a "class," and assert that the exception is authorized by NYC Admin Code § 26-511(c)(4) (re-enacted by the State Legislature, L 1985, Ch 907, § 1). That code provision, however, says nothing about the RGB's power to make distinctions: it says that landlords shall be required "to grant a one or two year ... lease at the option of the tenant." It is true that this requirement would make little sense if rent increases for one and two-year leases had to be the same, because almost all tenants would elect two-year leases; but this reinforces our point-the Legislature must have assumed that the RGB would make common-sense distinctions when it fixed the increases allowed for apartments.

The RGB has made a number of other distinctions within the apartment "class." It has allowed landlords to charge extra when electricity is included in the rent, and to collect "fuel adjustment surcharges" (see Stein v Rent Guidelines Bd. for City of N.Y., 127 A.D.2d 189, 190, 196 [1st Dept 1987]; Matter of Chessin v New York City Conciliation & Appeals Bd., 100 A.D.2d 297, 304 [1st Dept 1984] ). Indeed, the order challenged in this case distinguishes between apartments in which heat is provided by the landlord and those in which it is not. Petitioners say that all these distinctions are invalid, and have survived only because the power to create them has never been challenged; they assert that they could, but chose not to, attack the heat-based distinction contained in the order now at issue. To us, however, the fact that such distinctions have long been accepted without question is further confirmation that nothing in the governing legislation can fairly be read to prohibit them.

We therefore reject petitioners' argument that the RGB may not permit any increases that are larger, in percentage terms, for some apartments than for others. But petitioners also attack the dollar minimum increases now at issue on a narrower ground. They point out that the problem addressed by these minimums-the plight of landlords who are unable for a long time to obtain vacancy increases-has been dealt with to some degree by State legislation. New York City Administrative Code § 26-511(5-a), adopted by the Legislature in 1997 (L 1997, Ch 116), governs the rent increases permitted after an apartment becomes vacant. In general, the permissible vacancy increase is 20%, but where there has been no previous such increase within eight years "the legal regulated rent may be further increased" according to a formula stated in the legislation. Petitioners argue, in substance, that by giving landlords this form of relief, the Legislature implicitly prohibited the RGB from giving another form of relief for the same evil.

Again, petitioners' argument does not persuade us. There is no conflict between the RGB's dollar minimum increases, which give some benefit to landlords of low-rent, slow-turnover apartments while their tenants remain in possession, and the State legislation, which gives relief regardless of rent level after a slow-turnover apartment has finally become vacant. It is true that some landlords may, eventually, benefit from both provisions, but the two benefits, even where cumulative, are not logically inconsistent. Nor is the State legislation so detailed and comprehensive as to imply that the Legislature has preempted the field.

Petitioners rely on Matter of New York State Tenants & Neighbors Coalition, Inc. v Nassau County Rent Guidelines Board (53 AD3d 550 [2d Dept 2008] ), which invalidated an order of the Nassau County Rent Guidelines Board permitting rent increases that would vary with tenants' income. The New York State Tenants Court held that "the Board exceeded its statutory authority in establishing a separate class of accommodation based on tenant income" (id. at 552). To the extent that the Second Department in New York State Tenants-like the First Department here-accepted the argument that there can be no distinction in the rent increases allowed within a "class of accommodation" it was mistaken, for the reasons we have explained.

This does not mean that the result in New York State Tenants was necessarily wrong. It could be argued that, in making distinctions based on tenant income, the Nassau County Rent Guidelines Board trespassed on a sensitive policy area that is within the Legislature's special province (see Boreali v. Axelrod, 71 N.Y.2d 1 [1987] ). We do not pass on the merit of that argument as it applies to the New York State Tenants case. But we find the argument inapplicable here, where the RGB has dealt with a narrower, more technical and less sensitive issue.

Accordingly, the order of the Appellate Division should be reversed, with costs, and the petitions dismissed. Matter of Mercedes Casado, et al v Marvin Markus

No. 32

CIPARICK, J.(dissenting):

Because I believe that the New York City Rent Guidelines Board ("RGB" or "Board") lacks authority to promulgate orders imposing dollar minimum increases solely on tenants who have been living in their apartments for over six years and paying less than $1,000 in rent, I respectfully dissent.

I find it unnecessary to reach the question of whether the RGB has authority to create any distinctions whatsoever within the extant classes of accommodation, since it patently lacks power to draw the particular distinction at issue here. As the majority explains, the Board's authority is derived from section 26-510(b) of the Rent Stabilization Law of 1969 (Administrative Code of City of NY), under which it may "establish annually guidelines for rent adjustments." Even assuming that the Board, pursuant to this delegation, can set multiple rates for each class of housing, its ability to do so is limited by well-settled principles of administrative law.

Under the two orders at issue on this appeal, a tenant who has been living in an apartment for more than six years is subject to a minimum increase, whereas a more recent tenant in an identical apartment paying identical rent is not so subject. The rationale behind these orders is apparently, as Supreme Court explained, "to attempt to equalize the rental amounts that long-term and short-term tenants pay, because the operating expenses for these apartments are the same," yet long-term tenants generally pay less than more recent tenants for the same apartments.

Of course, it is no coincidence that long-term tenants are the greatest beneficiaries of rent stabilization, or that, in the majority's words, "tenants paying higher rents must subsidize those paying lower rents" (majority op 3). This inequality is due, in large part, to the Rent Regulation Reform Act of 1997 (L 1997, ch 116, § 19), which amended the Rent Stabilization Law to provide that a vacancy lease can increase a unit's rent by up to 20 percent, and even more where there has been no vacancy increase for over eight years or the rent is particularly low (Administrative Code of City of N.Y. § 26-511 [c][5-a] ). The evident purpose of these changes was to bring apartments closer to market rent as they become vacated (see Governor's Approval Mem, Bill Jacket, L 1997 ch 116, at 38-39). Critically, the Legislature did not couple the large rent increases it was authorizing for new tenants with any alteration in how rent increases were calculated for current tenants. Under this scheme, by design, there is a large rent gap between new tenants and those whose tenancies predate the amendment, and it will increase as many apartments experience repeated vacancies.

"It is a fundamental principle of administrative law that an agency cannot promulgate rules or regulations that contravene the will of the Legislature" or are " ‘out of harmony’ with an applicable statute" ( Weiss v. City of New York, 95 N.Y.2d 1, 4-5 [2000] ), yet the RGB did exactly that. By creating varied rates with the intended effect of minimizing the degree to which landlord costs are disproportionately covered by higher paying apartments, the Board sought to mitigate a rent disparity the Legislature created.

More broadly, it is axiomatic that, "[a]s an arm of the executive branch of government, an administrative agency may not, in the exercise of rule-making authority, engage in broad-based public policy determinations" ( Rent Stabilization Assn. of N.Y. City, Inc. v Higgins, 83 N.Y.2d 156, 169 [1993], citing Boreali v. Axelrod, 71 N.Y.2d 1, 9 [1987] ). It strikes me as a great usurpation of power for the RGB to create separate increases based on what it perceives as a structural inequity in the rent laws. The Board found it problematic that long-term tenants shoulder such a small percentage of landlord costs, and this determination, in our view, crosses "the difficult-to-define line between rule-making and legislative policy-making" ( Boreali, 71 N.Y.2d at 11).

Indeed, the RGB has conceded throughout this litigation that any distinctions in rate increases must be based on factors sufficiently connected to the housing accommodations themselves. FN1 It seems to have accepted the reasoning of New York State Tenants & Neighbors Coalition, Inc. v Nassau County Rent Guidelines Bd. (53 AD3d 550, 552 [2d Dept 2008] ), which relied on Boreali and Weiss in striking down a rent increase contingent on tenants' income. We see no relevant distinction between creating varied rates of increase based on income, which the Board concedes would be ultra vires, and varied rates based on duration of tenancy.


FN1. In Supreme Court, "the RBG concede[d] that it may not create classes of accommodation based on factors, such as the income of the tenants, that are not sufficiently connected to the housing accommodations themselves." Far from repudiating this view on appeal, the Board reiterated during oral argument before us that a rate distinction based on income would be inappropriate.

Finally, I note that under the majority's reasoning there is no limit to the amount that the Board can increase rents at the lowest end of the rent-stabilized spectrum for the purpose of evenly distributing maintenance costs that in many buildings are shared by long-term, newer, and market rate tenants. To me, it is obvious that such equalization is anathema to the purpose of the rent stabilization law, and therefore beyond the Board's authority.

Accordingly, I would affirm the order of the Appellate Division. * * * * * * * * * * * * * * * * *

Order reversed, with costs, and petitions dismissed. Opinion by Judge Smith. Chief Judge Lippman and Judges Graffeo, Read and Pigott concur. Judge Ciparick dissents and votes to affirm in an opinion in which Judge Jones concurs.

N.Y.,2011.
Casado v. Markus
--- N.E.2d ----, 2011 WL 1044606 (N.Y.), 2011 N.Y. Slip Op. 02072

END OF DOCUMENT
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