Petitioner Estelle Schaefer (petitioner), the rent-controlled tenant of apartment No. 7B in the building located at 230 Riverside Drive, New York, New York (the building) during the disputed rent period, brings this Article 78 proceeding for a judgment annulling a portion of the November 10, 2006 order and opinion (11/10/06 order) issued by respondent New York State Division of Housing and Community Renewal (DHCR). Petitioner alleges that DHCR's 11/10/06 order improperly affirmed the 2005 finding of the Rent Administrator (RA), eliminating a rent freeze for the period July 1, 1995 to February 1, 2002 that the RA had previously affirmed in a 2002 order. DHCR and the building's current owner, intervenor/respondent BCRE 230 Riverside LLC (the owner), have each filed a verified answer and legal memorandum opposing the petition.

I.Background and Procedural History

A. This Proceeding

The rent history and DHCR proceedings at issue in this matter began with a June 6, 1995 order of the Rent Administrator (RA) reducing the tenants' rent for the owner's failure to maintain several building-wide services, including a locked metal gate on the east side of the building. Exh. C(8), Petition. That order originally applied only to rent stabilized apartments. The order was amended by the RA in an order effective July 1, 1995 to change the status of the complaining tenant from rent stabilized to rent controlled, and to "add the remaining rent controlled tenants to the order." Exh. D(18), Return Part 2 of 2. As explained below, this order was challenged by the owner and protracted administrative litigation ensued.

The instant matter was initiated by petitioner with the filing of a rent overcharge complaint alleging that the building owner had improperly increased her rent for a major capital [*2]improvement (MCI), a building-wide window replacement.^[FN1] Exh. A-1, Return, Part 1 of 2. The preceding owner's request for an MCI increase had resulted in a March 1, 1999 RA order granting the increase but exempting petitioner's apartment (7B) "from the increase including all retroactivity [until] ... the date of repairs." Id. Petitioner alleged that after the building was sold in March, 1999, the owner had revoked the exemption, declared the windows functional after its own inspection, and increased petitioner's base rent by $31.60. The RA's order, which granted petitioner's complaint and refrained from increasing the Maximum Collectible Rent (MCR), included a rent history that incorporated the prior RA order exempting petitioner from the MCI rent increase. Exh. C(5), Petition.

The owner's PAR was denied by a DHCR Commissioner in a November 6, 2003 order, finding that the RA had "properly determined that the owner was not entitled to collect the MCI increase of $31.14 as of May 1, 1999," and that,

[T]here are outstanding service complaints and restoration applications presently pending before the agency. As such, the Administrator properly refrained from increasing the Maximum Collectible Rent herein. The parties are advised that the MCR may not be increased until the services are subsequently found to be restored.

B. Other DHCR Proceedings Involving the Building

Other, related DHCR proceedings are summarized in a May 4, 2004 consolidated order of the Commissioner resolving numerous "protracted and inextricably intertwined disputes between the owner and tenants." Exh. D, Petition. As explained in that order, the owner challengedthe original 1995 rent reduction order in a PAR. On July 30, 1997, a Commissioner denied the PAR. [*3]On January 23, 1998, the RA issued an amended order for the purpose of attaching a list of the rent controlled tenants affected by the original 1995 rent reduction order. The owner filed another PAR, which was denied on November 11, 1998. The owner then filed a rent restoration application, claiming inter alia that there was a locked gate at the east side of the building. The RA restored the rent, mistakenly relying on an agency inspection that had referred to a different gate. This ruling removed a regulatory impediment to the owner's MCI increase application, which was granted three weeks later. On December 17, 1999, the RA modified the rent restoration order finding that the service of the east side locked metal gate had not been restored. The owner filed another PAR alleging that it had removed the east side locked metal gate because it was a Building Code violation. The Commissioner granted the PAR and sent the matter back to the RA to consider this issue. During the remanded proceeding the RA directed the owner to submit a copy of the violation. When it was not submitted, the RA issued an order on April 12, 2001, finding the gate had not been restored and that the rent reduction order would stay in effect. On July 26, 2001, the owner filed a second rent restoration application as the gate had been restored. The RA later issued an order restoring the rents. Subsequent proceedings on the issue did not affect this ruling.

On another separate, but related track, the owner sought and received an MCI increase after the RA had mistakenly restored the rent based on an agency inspection that had referred to the wrong gate. After subsequent review by the DHCR, an Article 78 petition to the Supreme Court and another review by the agency in a remitted proceeding, the Commissioner revoked the MCI increase. The owner then filed an Article 78 petition. The Supreme Court (Tolub, J.), stayed the MCI revocation order and remanded the proceeding to the DHCR, which affirmed the prior revocation order in its May 4, 2004 consolidated order. The Commissioner also determined the owner's second MCI rent increase application, which had been filed on March 12, 2002, 88 days after the Commissioner issued the revocation order of the first MCI increase. Under the DHCR's regulations and policies, technically this second application was late, but the Commissioner allowed the MCI increase, finding in pertinent part:

In balancing the equities when making this decision, the Commissioner evaluated the true essence and importance of the service involved - a second floor landing stairway gate in a twenty story residential high-rise building with elevators. Although this service cannot be considered de minimus because of the gate's security feature, and was properly found to be a required/essential service, it also is not as serious and important as heat and hot water service and other more vital and necessary building services. The Commissioner finds that it would be a rather draconian result for this one item, which has already been rectified, to single-handedly defeat an MCI installation of this magnitude.

A. Standard of Review

A court reviewing an Article 78 proceeding must judge the propriety of an administrative action solely on the reasons cited by the administrative body. See Scherbyn v. Wayne-Finger Lakes Bd. of Coop. Educ. Servs., 77 NY2d 753, 758 (1991). Such an action must be upheld [*4]unless it "shocks the judicial conscience and, therefore, constitutes an abuse of discretion as a matter of law." See Featherstone v. Franco, 95 NY2d 550, 554 (2000). CPLR section 7803 states that the following questions may be raised with respect to an Article 78 proceeding: "Whether a determination was made in violation of lawful procedure, was effected by error of law or was arbitrary and capricious or an abuse of discretion, including abuse of discretion as to the measure or mode of penalty or discipline imposed."

In deciding whether an agency's determination was arbitrary, capricious, or an abuse of discretion, courts are limited to an assessment of whether a rational basis exists for the administrative determination, "without disturbing underlying factual determinations."Heinz v. Brown, 80 NY2d 998, 1001 (1992); see Matter of Pell v. Board of Educ., 34 NY2d 222, 231 (1974) ("Arbitrary action is without sound basis in reason and is generally taken without regard to the facts."). A rational or reasonable basis for the agency's determination exists if there is evidence in the record to support its conclusion. See Sewell v. New York, 182 AD2d 469, 473 (1st Dept. 1992).

There is a narrow exception to the general rule that a court is limited on review to the factual record before the agency when its determination was rendered. 9 NYCRR § 2527.8 provides that:

If application is made to the court by either party for leave to introduce additional evidence which was either offered and not admitted or which could not reasonably have been offered or included in such proceedings before the city rent agency, and the court determines that such evidence should be admitted, the court shall order the evidence to be presented to the city rent agency.

Where the petitioner submits with the petition certain facts or evidence which he or she establishes could not reasonably have been offered or included in the proceeding prior to the issuance of the order being appealed, the proceeding may be remanded for redetermination to the rent administrator to consider such facts or evidence.

Timeliness of Owner's PAR From RA's 9/26/06 Order

Petitioner now asks the court to vacate the 11/10/06 PAR order affirming the RA's 11/4/05 order because the owner was late in filing his PAR from the RA's 9/26/02 rent restoration order. The Commissioner rejected this claim, not based on a finding of timeliness, but rather concluding that the 11/6/03 decision adjudicating the merits of the owner's PAR impliedly decided it in the owner's favor. The Commissioner also found that petitioner had not exhausted administrative review because she failed to file an Article 78 petition from the order she is now attacking. Petitioner argues that pursuant to CPLR § 7801(1) she did not have the right to judicial [*5]review from the 11/6/03 remand order because it was nonfinal. Petitioner also argues that there is no basis on which to conclude that the Commissioner impliedly rejected the timeliness claim by deciding the PAR on its merits.

CPLR § 7803(3) provides, in pertinent part, that in deciding an Article 78 petition a court may address whether "a determination was made in violation of lawful procedure." There has been no finding by either the RA or the Commissioner that the owner filed its PAR from the 9/26/02 RA order either in a timely or an untimely manner. Petitioner claims the PAR was five days late. The owner reads the Commissioner's 11/6/03 merits decision as impliedly finding the PAR was timely. The court finds that there was a rational basis for the Commissioner to deny petitioner's claim of untimeliness. The Rent Stabilization Code provides that a petition for administrative review must be filed within 35 days after the date the order was issued. 9 NYCRR § 2529.2.

The regulations themselves are not entirely clear on whether the DHCR has discretion to accept for filing an untimely PAR. 9 NYCRR § 2529.6 provides, in pertinent part, that "[a]t any stage of a proceeding the DHCR may :.. (d) for good cause shown, except where prohibited by the RSL, accept for filing any papers, even though not filed within the time required by this Code." 9 NYCRR § 2529.7(d) specifically addresses the late filing of PARs, allowing "the commissioner ... (d) For good cause shown, [to] accept for filing any papers, other than a PAR, even though not filed within the time required by this Part." (Emphasis added.) The DHCR's interpretation of its own regulation is, however, entitled to deference by the court. Matter of Gaines v. New York State Div. of Hous. & Community Renewal, 90 NY2d 545, 548-549 (1997). As the court in Gaines held, "[T]he interpretation given to a regulation by the agency which promulgated it and is responsible for its administration is entitled to deference if that interpretation is not irrational or unreasonable." Id. (Citations omitted.) Courts have repeatedly held, based on the positions taken by the DHCR in the cases before them, that the agency "has discretion to assess the reasons for a delay in filing [a PAR] and in light thereof, when appropriate, to deem the filing timely." Matter of 77 Ave. D Assoc. v. State of NY Div. of Hous. and Community Renewal, 249 AD2d 113, 114 (1st Dept. 1998); see Jemrock Realty Company, LLC v. NY State Div. of Hous. & Community Renewal, 7 AD3d 338 (1st Dept.), appeal denied by 3 NY3d 606 (2004). Respondent DHCR reasonably concluded that because the agency had reached the merits of the owner's PAR from the RA's 9/26/02 order, "the PAR was deemed to have been filed in a timely manner." Exh. A, Petition. Petitioner does not cite to any regulation or case that requires the agency to make specific findings as to each and every argument or claim the parties put forth. Because the court concludes that the Commissioner's finding in this regard has a rational basis, it is not necessary to decide the alternative issue of administrative exhaustion on the merits. With that said, petitioner is correct in her argument that the Commissioner's remand order was not final and was therefore not subject to review under CPLR Article 78. CPLR 7801(1) ("[T]his article shall not be used to challenge a determination ... which is not final").

B. De Novo Review

Petitioner argues that the RA's 11/4/05 order on remand was improperly based on a de novo review of the rent history because it exceeded the authority granted in the remand order of December 23, 2003. There is a rational basis for the Commissioner's affirmance of the RA's [*6]11/4/05 order which conforms with the applicable law. The Commissioner remanded the matter to the Rent Administrator to reconsider the matter "on the basis of the original PAR ... for the sole purpose of determining the Maximum Base Rent and the Maximum Collectible Rent for the subject apartment." He also directed the RA to correct certain errors in the rent history that petitioner had raised. Exh. C(4), Return, Part 2 of 2. In reconsidering the matter, the RA revisited the issues raised by the owner in the original PAR. Contrary to petitioner's argument, the remand order authorized the RA to review all the issues raised by the owner and not just the two issues mentioned by the Commissioner in the remand order. The court, as it must, considers the plain meaning of the words "on the basis of the original PAR" and finds no limitation on remand of the issues raised in that PAR. As noted above, issues raised by the parties included timeliness of the PAR, the propriety of the MCI increase, and whether the east side locked gate was an "essential" service. The RA's consideration of these issues did not go beyond the remand order.

Petitioner further objects to the RA's consideration of issues that were not part of the original overcharge determination. The Commissioner specifically rejected this argument in its 11/10/06 order because the RA had based its review on numerous additional agency proceedings that directly affected the calculation of the MBR and MCR of petitioner's apartment, as well as the entire building:

... the Administrator's action in covering seemingly new issues that were not part of the original overcharge determination is attributable, in large part, to the additional case processing that took place subsequent to the issuance of the Administrator's September 26, 2002 order. ... [T]here were numerous subsequent agency proceedings at the Administrator's and the Commissioner's(Administrative Review) level having effect on the tenant's maximum rent.

At this point, after years of protracted administrative litigation and often conflicting or erroneous rulings, the RA modified the MBR and MCR of petitioner's apartment based on the available and relevant evidence. The function of the agency's reconsideration procedure is to permit the agency to review its own orders to correct any errors. The DHCR's own regulations specifically authorize the agency to modify an order "...where the DHCR finds that such order was the result of illegality, irregularity in vital matters or fraud." 9 NYCRR 2527.8. The function of the court upon an application for relief under CPLR article 78 is to determine, upon the proof before the administrative agency, whether the determination had a rational basis in the record or was arbitrary and capricious. Disposition of the proceeding is limited to "the facts and record adduced before the agency" when the administrative determination was rendered. Fanelli v. New York City Conciliation & Appeals Bd., 90 AD2d 756, 757 (1st Dept. 1982), affirmed by 58 NY2d 952 (1983); see Featherstone v. Franco, 95 NY2d 550, 554 (2000). The "record adduced before the agency" necessarily, and rationally, includes the orders and records in the agency's [*7]own files. See VR Equities v. NYC Conciliation and Appeals Bd., 118 AD2d 459 (1st Dept. 1986) (records in Board's files and cited in petitioner's administrative return were not dehors the record). The issues determined by the RA here and the records he relied on were all part of the DHCR's administrative record concerning the building and petitioner's apartment. The 11/10/06 order affirming the RA's decision is not rendered irrational or an abuse of discretion on this ground.

C. The Rent Freeze

Petitioner argues that the 1995 rent reduction order for a decrease in services should have resulted in a rent freeze until November, 2002, when the RA restored the $3 in rent retroactive to February 1, 2002, when the owner restored the east side locked gate on February 1, 2002. In rejecting this argument, the Commissioner relied on the May 4, 2004 Order and Opinion of the Commissioner that considered the effect of the building-wide 1995 rent reduction order on the owner's right to collect an MCI increase. The first MCI application had been revoked by the Commissioner on December 14, 2001 because the lack of a working east side locked gate had not been rectified, so the rent freeze effected by the original rent reduction order remained in effect. The language in the 2004 order on which the Commissioner relied to grant the owner's PAR under review in this proceeding, concerned the impact of the acknowledged rent freeze on the owner's second MCI application. The court finds that it was not rational and it was an abuse of the Commissioner's discretion to essentially revoke the rent freeze insofar as it precluded MBR and MCR increases until the effective date of the full rent restoration, February 1, 2002.

The Commissioner based his decision on both the 2004 order granting the second MCI application and the lack of an asterisk on the original rent reduction order denoting the east side gate as an "essential" service. Neither supports the Commissioner's decision that the east side gate service was not "essential," as that term is used in the regulations. First, the 2004 order did not find that the east side gate was not an essential service, just that it was not essential enough to warrant the defeat of a justifiable MCI increase on technical, timeliness grounds when the MCI application was filed after the service had been restored. The Commissioner found in the 2004 order that although the east side locked gate was a "required/essential service, it also ... [was] not as serious and important as heat and hot water service and other more vital and necessary building services...." Exh. D, Petition. The Commissioner found good cause for the late filing of the second MCI application and balanced the equities pursuant to 9 NYCRR 2522.7, from which he concluded that, "it would be a rather draconian result for this one item [the gate] , which has already been rectified, to single-handedly defeat an MCI installation of this magnitude." Id. This was in keeping with the agency's regulatory power to balance the equities under 9 NYCRR 2522.7:

In issuing any order adjusting or establishing any legal regulated rent, or in determining when a higher or lower legal regulated rent shall be charged pursuant to an agreement between the DHCR and governmental agencies or public benefit corporations, the DHCR shall take into consideration all factors bearing upon the equities involved, subject to the general limitation that such adjustment, establishment or determination can be put into effect with due regard for protecting tenants and the public interest against unreasonably high rent increases inconsistent with the purposes of the RSL, for preventing imposition upon the [*8]industry of any industry-wide schedule of rents or minimum rents, and for preserving the regulated housing stock.

This was not what the agency did here. On remand the RA recalculated the MBR and MCR without considering the rent freeze put into effect in 1995. The remand order noted some specific errors but did not require the RA, either directly or indirectly, to revoke the rent freeze entirely from its inception to the effective date of full rent restoration, February 1, 2002. Indeed, at no time during the administrative process underlying this proceeding did any RA or Commissioner find that the east side gate was not an essential service. To the contrary, as the 2004 order confirmed, the east side gate was "properly found to be a required/essential service." Exh. D, Petition. The issue in this proceeding is therefore not whether the east side gate was "essential," but rather whether the Commissioner's decision to affirm the RA's non-imposition of the rent freeze was rational in spite of the essential nature of the service. If it was not, then the RA erred by including MCR increases that were otherwise precluded by the rent freeze.^[FN2]

The only basis cited by the Commissioner, for his decision to affirm the Administrator's non-imposition of a rent freeze in the reopened proceeding, is the "clarifying language" of the 2004 order. That language, however, cannot rationally be viewed outside of the limited context in which it was used. The circumstances facing the DHCR in the consolidated PAR proceedings that resulted in the 2004 order, unlike the circumstances here, compelled the Commissioner to make an exception. If the second MCI application had not been rejected as untimely, the pre-existing rent freeze would have precluded any MCI rent increase, regardless that the owner had invested in a major building-wide capital improvement. There are no comparable circumstances compelling a balancing of equities in favor of the owner. The only change in the MCR required by the 2004 order was an increase resulting from a prospective MCI increase, and that order also specifically excluded petitioner's apartment until the windows were fixed. Exh. D at pg. 23, Petition. Accordingly, it is

ORDERED that petitioner's application seeking to vacate and annul the Commissioner's November 10, 2006 determination is denied insofar as petitioner challenges the Rent Administrator's de novo review and the timeliness of the PAR; and it is further

ORDERED that petitioner's application is granted insofar as it challenges the Rent Administrator's non-imposition of the rent freeze effected by a prior Rent Administrator's June 6, 1995 rent reduction order; and it is further

ORDERED that the proceeding is remanded to the DHCR to redetermine the MBR and

MCR for petitioner's apartment exclusive of amounts precluded by the rent freeze. [*9]

ENTER:

Date: April 8, 2008_______________________________

New York, NYJ.S.C.