Upon the foregoing papers, petitioner Ador Realty LLC seeks judicial review, under article 78 of the CPLR, of an order issued by respondent Division of Housing and Community Renewal (DHCR) dated April 19, 2006 which allegedly failed to properly consider the costs of materials and painting associated with improvements to a rent stabilized unit in petitioner's building.

This proceeding originated from the filing of an overcharge complaint by a tenant in petitioner's building on February 21, 2001. In the complaint, the tenant alleged that she was being overcharged since her then monthly rent of $790.00 was considerably more than the monthly rent charged to the previous tenant. In response to the complaint, petitioner maintained that the rental figure was proper as it was entitled to a 20% vacancy increase, a 21 year longevity allowance and an individual apartment increase (IAI) stemming from renovations performed to the subject apartment prior to the tenant's occupancy. In support of the improvement claims, petitioner submitted copies of a contractor's bill, cancelled checks and receipts for supplies related to the claimed improvements. On January 10, 2002, the Rent Administrator (RA) issued an order finding a rent overcharge in the amount of $12,888.20 inclusive of treble damages. As part of the RA's calculation, petitioner was credited with a rental increase based upon the [*2]cost of some of the renovations claimed ($885.15), though other claimed improvements were disallowed on the basis that the DHCR's inspector could find no evidence thereof or otherwise constituted mere maintenance or repair for which a rental increase was not available. Petitioner subsequently filed a petition for administrative review (PAR), which was granted in part by the Deputy Commissioner to the extent that petitioner was credited a further cost of $729.50 for materials, in addition to the $885.15 previously credited for the installation cost of a kitchen sink, base and plumbing and a bathroom medicine cabinet. The overcharge award was consequently reduced to $10,975.69, inclusive of treble damages.

The Deputy Commissioner's order was challenged by way of article 78 petition to this court. By order dated March 6, 2003, this court granted the petition and directed that the matter be remanded to the DHCR for further proceedings. This court based its decision, inter alia, on a finding that it was irrational for the DHCR to determine that certain improvements, which may not have been visible to the naked eye, were never performed based solely on the report of its inspector who could not find any visual evidence thereof, particularly in light of documentary evidence submitted by petitioner which was sufficient under the Rent Stabilization Code and/or DHCR policies to demonstrate that the work was in fact completed. This court's March 6, 2003 order was appealed by the DHCR to the Appellate Division, Second Department. On October 3, 2005, the Appellate Division issued an order wherein it stated, inter alia:

"Applying here the rationality standard outlined by the Court of Appeals, the DHCR's determination, to the extent that it relied on the inspector's report as evidence with respect to items of repair that could not be observed on a visual inspection, was indeed unsupported by proof sufficient to satisfy a reasonable [person], of all the facts necessary to be proved in order to authorize the determination.' The inspector's failure to see improvements such as new plywood was installed in the kitchen,' new walls with sheetrock' in the kitchen, new ceramic wall tiles,' new wall with sheetrock. . . in bedroom,' and a new door frame in the living room does not constitute proof that those improvements were not done several years earlier. Because the documentary evidence submitted by the owner in support of these improvements was otherwise sufficient in accordance with the DHCR's policy, the DHCR acted irrationally in denying the owner's claim to the extent that it did so on the basis of the inspector's report" (Ador Realty LLC v DHCR, 25 AD3d 128, 140)(citations omitted).

The Appellate Division modified the March 6, 2003 order

"by deleting the provision thereof granting the petition, vacating the order of the Commissioner of the Division of Housing and Community Renewal and remitting the matter to the Division of Housing and Community Renewal with directions to consider certain material and refrain from considering other material, and substituting therefor a provision granting the petition only to the extent of vacating so much of the order of the Commissioner of the Division of Housing and Community Renewal as declined to allow [*3]major capital improvements on the basis of the inspector's report" (Ador Realty LLC, 25 AD3d at 142).

The Appellate Division further ordered that the matter be remanded to the DHCR to recalculate the amount of the legal regulated rent, overcharges and treble damages. Upon remand, the Deputy Commissioner took the orders of this court and the Appellate Division into consideration and issued a new order, dated April 19, 2006, wherein he found that the owner "should be credited for the sum of $2,467.15 as the total cost of materials and labor for IAIs expended while the subject apartment was vacant prior to the tenant's occupancy thereof." The overcharge award was consequently reduced to $8,742.11, including treble damages. Petitioner thereafter commenced this second article 78 proceeding, claiming that the DHCR made certain errors in arriving at the new overcharge award figure.

The first error in the new order alleged by petitioner is that while the DHCR credited petitioner with costs in the amount of $2,467.15, such a sum represented only the cost of labor, and the DHCR failed to also take into account the $2,997.18 cost of materials associated with the approved renovation items (as had similarly occurred with the first determination of the RA in the prior proceeding). Secondly, petitioner claims that the new order failed to take into consideration the prior order of the Deputy Commissioner which credited petitioner with an additional $729.50 representing the materials cost for the renovations then approved. Instead, petitioner asserts that the DHCR arrived at its $2,467.15 "materials and labor" calculation by adding the costs of labor associated with the renovation items added by the Appellate Division ($1,580.00) only to the original $885.15 in costs awarded by the RA in the prior proceeding (albeit with an unexplained discrepancy of $2.00). Finally, petitioner contends that the DHCR should have credited the costs associated with the re-painting of the areas of renovation which were approved in the new order. According to petitioner, the DHCR's failure to take the above into consideration constitutes "gross negligence" for which petitioner is entitled to collect attorneys fees and costs pursuant to CPLR 8601.

It is axiomatic that a court's function in an article 78 proceeding 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 (Pell v Bd. of Educ., 34 NY2d 222, 230-231 [1974]). "Arbitrary action is without sound basis in reason and is generally taken without regard to the facts" (id. at 231). As stated by the Appellate Division in its October 3, 2005 decision, a rational basis exits where the determination is " [supported] by proof sufficient to satisfy a reasonable [person], of all the facts necessary to be proved in order to authorize the determination'" (Ador Realty LLC, 25AD3d at 139-140 quoting Pell, 34 NY2d at 231).

In its answering affirmation, the DHCR states that the Appellate Division modified this court's order to substitute a provision "granting the petition only to the extent of vacating so much of the order of the Commissioner of the Division of Housing and Community Renewal as declined to allow major capital improvements on the basis of the [*4]inspector's report" and that petitioner's objections to the new order do not involve matters disallowed "on the basis of the inspection report." The DHCR maintains that it recalculated the rent by crediting petitioner for the cost of improvements that had previously been disallowed upon the inspection report.

However, the Deputy Commissioner clearly intended to credit petitioner for the costs of both materials and labor associated with the improvements reconsidered by the DHCR on remand from the Appellate Division since the new order expressly states the awarded sum of $2,467.15 represented the total cost of "materials and labor." DHCR's answering papers are obfuscatory in that they do not clearly address or respond to petitioner's arguments that the $2,467.15 figure accounts only for the cost of labor, but not materials, that the $729.50 materials credit in the Deputy Commissioner's prior order was not included in the present calculation, and that petitioner was entitled to re-painting costs associated with the approved renovations. Nor is there any clear explanation as to how the Deputy Commissioner arrived at the $2,467.15 figure. Under the circumstances, this court finds that the Deputy Commissioner's new order is not rationally based in the record and must be set aside.Accordingly, petitioner's article 78 petition is granted, and this matter is hereby remanded to the DHCR for a new determination and overcharge calculation which shall take into account evidence of the costs of both materials and labor for the improvements approved by the Deputy Commissioner under his prior order and the new order, and shall make an express determination as to whether petitioner is entitled to its claimed costs for repainting associated with the newly approved renovations.

Despite this disposition, this court recognizes that the Deputy Commissioner's calculation could be the result of an inadvertent accounting failure, and thus declines to exercise its discretion to award costs and attorneys fees under CPLR 8601 (see McCrimmon v Dowling, 247 AD2d 620 [1998]). Petitioner's request for costs and attorney's fees is denied.

The foregoing constitutes the decision and order of the court.

E N T E R,

J. S. C.