M E M O R A N D U M
SUPREME COURT: QUEENS COUNTY
IA PART: 14
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Matter of PAOLING HWANG & DENVER
INDEX NO. 14074/99
HSIA
BY: POLIZZI, J.
- against -
DATED: NOVEMBER 16, 1999
NEW YORK STATE DIVISION OF HOUSING
AND COMMUNITY RENEWAL
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In this Article 78 proceeding, petitioners Paoling Hwang and Denver Hsia seek a judgment reversing and annulling the decision and order of respondent New York State Division of Housing and Community Renewal ("DHCR"), dated April 27, 1999 which upheld the finding of a rent over charge and the imposition of treble damages, and removed the reference to a rent reduction order and removed the excess security of $242.97.
Petitioners Paoling Hwang and Denver Hsia are the owners of a rent-stabilized housing accommodation known 43-18 49th Street, Long Island City, New York. On February 10, 1986, Paul Zheng Lu filed a rent overcharge complaint, in which he alleged he never received a lease. Mr. Lu took occupancy of the subject premises in June 1984, at which his rent was $425. The owner, Paoling Hwang, in an answer dated March 31, 1986, submitted a copy of a lease entered into with St. Regis/Verden Imports for the period of June 15, 1985 to June 14, 1986, with a rent of $450.50 a month, along with an annual apartment registration form, naming St. Regis/Verden as the tenant, with a rent of $425 a month. The owner asserted that Verden Imports was the legal registered tenant of the subject apartment. The tenant, in a letter dated August 1, 1986 stated that this was an illusory prime tenancy, that neither the landlord, nor his company nor its employees ever occupied the apartment, and that the principal owners of the premises were also owners of Verden Imports. The owner and the tenant submitted additional information regarding Verden Imports alleged prime tenancy in August, September and October 1986.
On January 27, 1986 Mr. Lu filed a separate complaint with the DHCR, requesting that the owner be directed to provide him with a lease. On October 3, 1986, the Rent Administrator determined that Mr. Lu was the primary tenant and directed the owners Paoling Hwang and Denver Hsia to offer Mr. Lu a proper renewal lease. On November 5, 1986 the owners filed a petition for administrative review (PAR), asserting that the subject apartment was validly rented to the corporate tenant Verden Imports, Inc. The Commissioner of the DHCR, in an order dated June 6, 1988 denied the owner's PAR, finding that Verden Imports was an illusory prime tenant, and that Mr. Lu was the actual prime tenant and should be offered a renewal lease. This determination was based, in part, on the fact that the principals of Verden Imports were also the owners of the subject building and no written sublease existed between Verden and Mr. Lu. The owners thereafter commenced an Article 78 proceeding in this court, and pursuant to a stipulation dated January 31, 1989 the matter was remanded to the agency for a hearing. A hearing was held on May 17, 1989 and June 25, 1989.
In the meantime, the DHCR continued to process Mr. Lu's February 10, 1986 rent overcharge complaint. On October 17, 1986 the tenant informed the DHCR of the October 3, 1986 order regarding the issue of prime tenancy. The DHCR in a notice dated May 12, 1987 directed the owner to submit all leases for the subject apartment dating back to April 1, 1980. The owner's counsel, in a letter dated June 3, 1987, stated that the owners only had leases dating back to 1983 when they bought the building and that they did not have any prior leases. Copies of the leases, showing Verden Imports/St. Regis, as the tenant, were submitted for the years 1983 through 1987. The DHCR, in a notice dated June 25, 1987 requested that the owner's counsel supply a lease or rent rolls for the subject apartment, stating that it as the owner's responsibility to obtain this information from the prior owner. Final notices dated August 12, 1987 were sent to Hwang and Hsai and their attorney, requesting copies of the leases dating back to April 1, 1980.
On October 4, 1988 the DHCR informed the owners that the tenant's complaint would be treated as a timely challenge to the initial rent registration statement, as they had failed to submit proof that said statement had been served on the tenant. The owners were also notified that they were required to submit leases dating back to April 1, 1980, that the DHCR would establish the lawful stabilized rent, and that treble damages may be imposed. The owners in a response received by the DHCR on November 9, 1989 merely referred to their counsel's letter of June 3, 1987. The tenant, on May 6, 1991, in response to a request for additional information, submitted copies of proof of rental payments and stated that he had been paying $425 a month since January 1986 and that the landlord had refused to sign a lease agreement. A final notice of pending default was sent to the owners on May 29, 1991.
On July 21, 1991 the Rent Administrator issued an order, finding a rent overcharge and imposing treble damages totaling $62,929.23. The Rent Administrator included in his decision a copy of the hearing report, dated April 6, 1990, which set forth the close relationship between the owners and Verden Imports; found Verden Imports to be an illusory prime tenant; found Mr. Lu to be the actual prime tenant, and found that the rent registration statements filed by the owner conflicted with the lease agreements. The Rent Administrator determined that the owners failed to submit a rental history as requested by the DHCR; failed to prove that the overcharge was not willful; and failed to properly register the apartment for the years 1984 through 1991 and, therefore, froze the rent as of June 1, 1984. The Rent Administrator, using the agency's default procedures determined that the lawful stabilized rent, as of June 1, 1984, was $182.03.
On August 14, 1991, the owner filed a PAR with the DHCR, asserting that the Rent Administrator's order of July 12, 1991 was arbitrary and capricious, and contrary to the Rent Stabilization Law, and the agency's own fact sheet. The owners asserted that in connection with the cases concerning the tenant's status, a hearing was held in May and June 1989 and neither they nor their attorneys ever received a copy of the hearing report or the resulting order until it was sent as part of the July 12, 1991 order. The owners, therefore, appealed the entire order, including the hearing report, and asserted that the subject apartment was duly registered on April 1, 1984 at a rent of $400, to a tenant listed as "Regis"; that the rent should not have been frozen, as the apartment was properly registered every year since 1984; that as the tenant filed a rent overcharge complaint, the agency lacked the authority to process the tenant's complaint as a challenge to an initial rent registration; that although the owners' present counsel filed several notices of appearance the final notice was sent to the owners rather than their attorneys; that the final notice was the only notice sent; that the owners' attorneys requested an extension of time in which to respond, which was received on June 19, 1991; that the Rent Administrator, however, chose to issue an order, utilizing the default method and freezing the rent; that the owners were not given a reasonable opportunity to obtain leases dating back to April 1, 1980 from the prior owner; that it is the agency's policy to require the illusory prime tenant to be responsible for refunding overcharges; that it is to the DHCR's policy, and that there is no authority, to deem the rent registrations void, and to process the overcharge complaint as a challenge to the initial registration; that the order failed to recognize that the reduced rent was restored pursuant to an order effective May 1, 1987; that any overcharge which occurred was not willful and was only the result of the owners' inability to produce leases for a prior tenant; and that the matter should be remanded to give the owners a reasonable opportunity to obtain leases for the period prior to 1983. The tenant submitted an answer to the PAR on September 17, 1991, asserting that Verden's prime tenancy was illusory, and, therefore, it was as if the apartment was never registered; that the owners had 5 2 years to obtain the leases dating back to 1980; that the owner's request for an extension of time was not attached to the PAR; and that the Rent Administrator properly determined that there had been a rent overcharge and imposed treble damages.
The Deputy Commissioner of the DHCR, in a decision and order dated April 27, 1999, granted the PAR, in part, and modified the Rent Administrator's order. The Deputy Commissioner reviewed the testimony and evidence presented at the hearing, and determined that: "Verden Imports was clearly an illusory prime tenant whose alleged tenancy should not be allowed to affect the rights of the complainants, particularly the right to challenge the initial registration. There was no legitimate tenant in occupancy on April 1, 1984, and Denver Hsia, his wife, his father and his sister were not about to complain that they were being charged too high a rent by Denver Hsia, his wife, his brother and his wife's mother. The complainants were, when they commenced occupancy, the first true tenants after the base date and, therefore, the first tenants with a right to challenge the initial registration. It was proper to process their overcharge complaint as such a challenge." The Deputy Commissioner found that as the owner failed to properly file the initial registration, the base rent date was February 10, 1982, four years prior to the filing of the tenant's complaint on February 10, 1986, pursuant to the Rent Regulation Reform Act of 1997. The owner therefore was required to submit a rental history from February 10, 1982. The Deputy Commissioner found that use of the default procedures for establishing the lawful stabilized rent and the imposition of treble damages was warranted as the owner failed to properly register the apartment, never provided the tenants with a lease, failed to produce rent records, and failed to comply with the DHCR's orders reducing the rent and directing the owners to give a lease to the tenants. The Deputy Commissioner further found that while it was not the DHCR's practice to routinely send parties hearing reports, and would do so, if requested. It was noted that the owners did not contest the hearing report's conclusion that Verden Imports was an illusory prime tenant. Finally, the Deputy Commissioner determined that there was no lack of due process as regards the issuance of the July 12, 1991 order. The Deputy Commissioner found that the owner's prior attorney, on June 3, 1987 submitted leases dating only from 1983 when the owners purchased the building, stating that they did not have the prior leases. The DHCR, thereafter, sent notices to the owners attorney and the owners on August 12, 1987 and October 4, 1988, requesting the prior leases, and Hwang, responded on November 7, 1989 by submitting another copy of the attorney's letter of June 3, 1987. The owners in their petition, or any time thereafter, did not submit the leases nor even contend that they were available. Furthermore, while a final notice was given to the owners on May 29, 1991, this notice gave the owners until June 18 (21 days) to reply. The Administrator's order was not issued until July 12, 1991. The owners claimed that they did not receive the May 29, 1991 notice until a "few days" before the June 18 deadline and claim that a request for an extension was received by the agency on June 19. This request, however, was not part of the file or the petition. The Commissioner noted that there was no evidence that an extension was granted, and the Administrator's order was issued 24 days after the deadline established by the May 29, 1991 Final Notice. The Deputy Commissioner thus granted the petition only to the extent of removing the reference to the rent reduction order, as all such orders were irrelevant, since the permanent and collectible rent was frozen at $182.03 through July 31, 1991. The Rent Administrator's order was modified to remove excess security of $242.97, as the tenants apparently vacated the premises. The owners were found to be liable for the refund of the overcharges of $62,686.26.
Petitioners now seek a judgment vacating respondent's decision and order of April 27, 1999 on the grounds it was arbitrary and capricious and a denial of due process. Petitioners do not contest the Deputy Commissioner's finding of an illusory prime tenancy. Rather, petitioners assert that the Deputy Commissioner misinterpreted 9 NYCRR 2528.4 as regards the effect of the initial apartment registration and asserts there is no basis in law for finding that the base rent date was February 10, 1982 and requiring the owner to submit a rental history from that date. Petitioners assert that the penalties for failing to file an initial registration are set forth in 9 NYCRR 2528.4, and that the base rent date should have been April 1, 1984, the year the annual registration was required to be filed. Petitioners further assert they were denied due process, as without prior notice, a final notice was mailed on May 21, 1991; that the Rent Administrator ignored the request for an extension; and that petitioners did not have a reasonable time to submit the rental history from April 1, 1980. In addition, it is asserted as the owner was only required to submit rental history from February 10, 1982, the Rent Administrator's request was for a period not relevant to this proceeding.
Respondent DHCR, in opposition, asserts that its decision and order of April 27, 1999, was neither arbitrary nor capricious, is supported by the record and has a reasonable basis in law.
It is well settled that the court's power to review an administrative action limited to whether the determination was warranted in the record, has a reasonable basis in law and is neither arbitrary nor capricious. (Matter of Colton v Berman, 21 NY2d 322.) In the case at bar, the court finds that the DHCR's decision and order of April 27, 1999 which upheld the finding of a rent overcharge and imposed treble damages, has a reasonable basis in law, is supported by the record and is neither arbitrary nor capricious.
It is well within the DHCR's scope of authority to determine the lawful rent for rent-stabilized housing accommodations, to decide whether there has been an overcharge, to direct a refund of an overcharge and excess security deposits, and to impose an award of interest or treble damages (Administrative Code of the City of New York, '' 26-511[a]; 26-516; 9 NYCRR 2526.1[a][1].)
Petitioners do not challenge the DHCR's determination that Verden Imports/Regis was an illusory prime tenant, and that the prime tenant was in fact Mr. Lu. Inasmuch as petitioners failed to properly register the subject apartment in 1986, when Mr. Lu, took occupancy, or prior to the Rent Administrator's order in 1991, and failed to serve a copy of the registration on the tenant, or provide a rental history for the apartment dating back to the base date, the Deputy Commissioner properly permitted the agency to use its settled procedures to establish the rent. (See, Matter of 61 Jane St. Assoc. v New York Conciliation and Appeals Board, 65 NY2d 898; Matter of Bauer v New York State Div. of Hous. and Community Renewal, 225 AD2d 410; Matter of Baig v New York State Div. of Hous. and Community Renewal, 201 AD2d 726; Matter of Drewbar Realty Co. v State of New York Div. of Hous. and Community Renewal, 181 AD2d 617.) The provisions of 9 NYCRR 2528.4, which impose penalties for the failure to properly comply with the initial apartment registration provisions, bars the collection of increases in the excess of lawful rent. This provision, however, does not govern the procedures for establishing the lawful rent, which are set forth in section 26-516 of the Administrative Code. The court, therefore, finds that the Deputy Commissioner, properly determined the lawful stabilized rent, with a base date, 4 years prior to the tenant's initial complaint, and properly disregarded the 1984 registration which was made in connection with the illusory tenancy. Since the petitioners failed to establish by a preponderance of the evidence that the overcharge was not willful, treble damages were properly imposed. (See, Matter of Gattiboni v Aponte, 188 AD2d 434.)
Finally, the court finds that there were no due process violations as regards petitioners' notice and opportunity to submit a complete rental history. At the time the tenant's complaint was filed, and up to 1997, petitioners were required to submit a complete rental history dating back to April 1, 1980. The Rent Regulation Reform Act of 1997 limited the period of rental history to the four year period prior to the date of the tenants' complaint (see, Administrative Code of the City of New York, ' 26-516.) The evidence in the record amply supports the Deputy Commissioner's determination that petitioners were given adequate notice of the need to produce a complete rental history. Petitioners or their attorneys were mailed such notices on May 12, 1987, June 25, 1987, August 12, 1987, October 4, 1988 and May 29, 1991. Petitioners, however, failed to submit a complete rental history, and stated that they did not have leases from the prior owner. Contrary to petitioners' assertions, the May 29, 1991 notice gave petitioners a reasonable opportunity to submit either the leases or the rent roll. While petitioners assert that they requested an extension of time, upon receipt of the May 29, 1991 notice, the administrative record is devoid of any such request, and petitioner did not produce such evidence in its PAR. The court, therefore, finds that as petitioners received repeated notices over a 4 year period, and failed to respond, their due process claims were properly denied. The court further notes that in the more than 7 year period during which the PAR was pending, petitioners failed to obtain and submit the required leases or rent rolls. Petitioners, thus, had 11 years in which to produce the rental history and, therefore, now cannot be heard to complain that they were not given a reasonable opportunity to submit the rental history.
In view of the foregoing, the petitioners's request to vacate the decision and order of April 27, 1999 is denied and the petition is dismissed.
Settle judgment.
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J.S.C.