Supreme Court, New York County, October 12, 2017

Rich, Intelisano & Katz, LLP, New York City (Daniel E. Katz of counsel), for petitioner.

Zachary W. Carter, Corporation Counsel, New York City (Pamela A. Koplik of counsel), for respondents.

Petitioner, the owner of 132 East 45th Street, New York County, challenges an appeal decision and order by respondent Environmental Control Board of the City of New York (ECB) imposing discretionary civil penalties of $1,000 per day for 45 days pursuant to Administrative Code of City of NY § 28-202.1. (CPLR 7803 [3], [4].) ECB added these daily penalties totalling $45,000 to its non-discretionary, set civil penalties of $5,800 in the ECB Buildings Penalty Schedule (1 RCNY 102-01 [g]), for illegal conversion of apartments 4G and 9C in petitioner's building from permanent residences to transient use, in violation of Administrative Code §§ 28-210.3 and 28-301.1.

Administrative Code § 28-210.3 provides that

"[i]t shall be unlawful for any person or entity who owns or occupies a multiple dwelling or dwelling unit classified for permanent residence purposes to use or occupy, offer or permit the use or occupancy or to convert for use or occupancy such multiple{**59 Misc 3d at 1010} dwelling or dwelling unit for other than permanent residence purposes."

Administrative Code § 28-301.1 provides that "[t]he owner shall be responsible at all times to maintain the building . . . in a safe and code-compliant manner . . . ."

Administrative Code § 28-201.2.1 (16) classifies a "violation of section 28-210.3 that involves more than one dwelling unit or a second or subsequent violation of section 28-210.3 by the same person at the same dwelling unit or multiple dwelling" as a class 1 immediately hazardous violation. (See 1 RCNY 102-01 [b] [1].) Administrative Code § 28-202.1 (1) sets [*2]forth the civil penalties for immediately hazardous violations: "not less than one thousand dollars nor more than $25,000 . . . for each violation. In addition . . . , a separate additional penalty may be imposed of not more than $1,000 for each day that the violation is not corrected." 1 RCNY 102-01 (g) (1) specifies that the daily penalties

"will accrue at the rate of $1,000 per day for a total of forty-five days running from the date of the Commissioner's order to correct set forth in the NOV [Notice of Violation], unless the violating condition is proved . . . at the hearing to have been corrected prior to the end of that forty-five day period, in which case the daily penalties will accrue for every day up to the date of that proved correction."

The court may overturn respondents' determinations only if they were arbitrary, lacked a rational basis in the administrative record, or lacked a basis in law. (CPLR 7803 [3]; Matter of Rossi v New York City Dept. of Parks & Recreation, 127 AD3d 463, 467 [1st Dept 2015]; Matter of Nestle Waters N. Am., Inc. v City of New York, 121 AD3d 124, 127 [1st Dept 2014]; Matter of 20 Fifth Ave., LLC v New York State Div. of Hous. & Community Renewal, 109 AD3d 159, 163 [1st Dept 2013]; Matter of Langham Mansions, LLC v New York State Div. of Hous. & Community Renewal, 76 AD3d 855, 857 [1st Dept 2010]; see Matter of London Terrace Gardens L.P. v New York State Div. of Hous. & Community Renewal, 149 AD3d 521, 521 [1st Dept 2017].) ECB's interpretation of the regulations and statutes governing the maintenance, use, occupancy, and safety of buildings in New York City that ECB is charged with enforcing (NY City Charter § 1049-a [c] [1]) is entitled to deference as long as that interpretation is rational and consistent with governing{**59 Misc 3d at 1011} law. (Barenboim v Starbucks Corp., 21 NY3d 460, 470-471 [2013]; Matter of Chesterfield Assoc. v New York State Dept. of Labor, 4 NY3d 597, 604 [2005]; Nestle Waters N. Am., Inc. v City of New York, 121 AD3d at 127; see Matter of Murphy v New York State Div. of Hous. & Community Renewal, 21 NY3d 649, 654-655 [2013]; Matter of Lighthouse Pointe Prop. Assoc. LLC v New York State Dept. of Envtl. Conservation, 14 NY3d 161, 176-177 [2010]; Roberts v Tishman Speyer Props., L.P., 13 NY3d 270, 285-286 [2009].) Although the court need not defer to ECB's expertise or interpretation when discerning the plain meaning of a statute or regulation (Matter of ATM One v Landaverde, 2 NY3d 472, 476-477 [2004]; Rossi v New York City Dept. of Parks & Recreation, 127 AD3d at 467; Associated Mut. Ins. Coop. v 198, LLC, 78 AD3d 597, 598 [1st Dept 2010]; Matter of Smith v Donovan, 61 AD3d 505, 508-509 [1st Dept 2009]), when the terms of the statute or regulation are ambiguous and susceptible to conflicting interpretations, the court will accord deference to ECB's interpretation and uphold it as long as it is reasonable. (Matter of Golf v New York State Dept. of Social Servs., 91 NY2d 656, 667 [1998]; Matter of Chin v New York City Bd. of Stds. & Appeals, 97 AD3d 485, 487 [1st Dept 2012]; Matter of Espada 2001 v New York City Campaign Fin. Bd., 59 AD3d 57, 64 [1st Dept 2008].)

[1] Following petitioner's administrative appeal of the ECB hearing officer's recommended decision and order, respondents' appeal decision and order imposed three non-discretionary, set civil penalties totalling $5,800. Of that amount, $3,200 was for petitioner's violation of Administrative Code § 28-210.3, $1,000 for its violation of Administrative Code § 28-301.1, and $1,600 for its violation of New York City Building Code (Administrative Code of City of NY, tit 28, ch 7) § BC 907.2.8, which specifies requirements for fire alarm systems in buildings occupied by transients. Thus only one violation was of Administrative Code § 28-210.3, an immediately hazardous violation subject to the additional discretionary daily penalties if it involved "more than one dwelling unit or a second or subsequent violation of section 28-210.3 by the same person at the same dwelling unit or multiple dwelling." (Administrative Code § 28-201.2.1 [16].)

The parties do not dispute that petitioner's violations involved more than one dwelling unit, apartments 4G and 9C,{**59 Misc 3d at 1012} but no evidence indicates that the violations were second or subsequent violations. The parties agree further that "the date of the Commissioner's order to correct set forth in the NOV" citing Administrative Code § 28-210.3 was October 23, 2014. (1 [*3]RCNY 102-01 [g] [1].) Thus the 45 days of potential daily penalties ran until December 7, 2014. Respondents also admit that petitioner showed at the ECB administrative hearing that by November 30, 2014, the tenant and occupants of apartment 4G had vacated the apartment, so that the transient use was corrected. At least by that point, the immediately hazardous violation of Administrative Code § 28-210.3 no longer involved "more than one dwelling unit," nor was the violation ever "a second or subsequent violation of [Administrative Code §] 28-210.3 by the same person at the same dwelling unit or multiple dwelling." (Administrative Code § 28-201.2.1 [16].)

Consequently, pursuant to 1 RCNY 102-01 (g) (1), petitioner proved at the hearing that the violating condition involving "more than one dwelling unit," (Administrative Code § 28-201.2.1 [16]), had been corrected seven days before the end of 45 days from October 23, 2014, the date of the order to correct in the NOV. Based on these facts, 1 RCNY 102-01 (g) (1) further dictates that the daily penalties may accrue only up to the date of that proved correction. ECB's determination that petitioner did not prove that the violating condition had been corrected before February 10, 2015, when the tenants and occupants of apartment 9C vacated that apartment, is inconsistent with Administrative Code §§ 28-201.2.1 (16) and 28-210.3 and 1 RCNY 102-01 (g) (1) and thus arbitrary. (CPLR 7803 [3].) Therefore petitioner is entitled at minimum to a $7,000 reduction in the $45,000 discretionary penalties.

A. Enforcement against the Owner Versus Enforcement against the Tenants

[2] In a nutshell, petitioner insists that no discretionary penalties were warranted because it showed its unawareness of its tenants' unlawful subleasing for transient use and that even penalties of $38,000 are disproportionate to its unknowing violation. Petitioner emphasizes that Administrative Code § 28-210.3 prohibits "any person or entity who owns or occupies a . . . dwelling unit classified for permanent residence purposes to use or occupy, offer or permit the use or occupancy or to convert for use or occupancy such . . . dwelling unit for {**59 Misc 3d at 1013}other than permanent residence purposes." (Emphasis added.) Thus the prohibition extends to tenants subleasing their apartments for transient use and to their subtenants occupying the apartments for transient use.

The fact that other violators might be penalized, however, does not absolve apartment owners of their affirmative obligation to "be responsible at all times to maintain the building . . . in a . . . code-compliant manner." (Administrative Code § 28-301.1.) The prospect of daily penalties even for unknowing violations encourages owners' proactive efforts to know what is occurring in their buildings, to assure compliance with the Administrative Code, and to discover and correct immediately hazardous violations promptly. Contrary to petitioner's suggestion that the short term rental of only two units is not an immediately hazardous condition, the law so classifies such conduct. A repeated violation of Administrative Code § 28-210.3 is classified as immediately hazardous because transient use threatens the public interest in preserving permanent housing. (1 RCNY 102-01 [b] [1].)

Petitioner protests that the administrative record lacks any evidence of petitioner's wrongdoing, but the undisputed fact that petitioner violated Administrative Code § 28-210.3 in two apartments at the same time evinces the owner's lax oversight of the apartments' use. The two apartments are within a building of 94 apartments, to be sure, but a larger building imposes greater responsibilities on its owner. Even if the wrongdoing was unknowing and unintentional and only negligent, the potential daily penalties deters even negligent conduct. Neither ECB nor the court need conclude that, because petitioner did not know of the transient use, petitioner ought not to have known.

In sum, while petitioner maintains that respondents' enforcement of Administrative Code §§ 28-202.1 (1) and 28-210.3 does not target the wrongdoer, their enforcement against the building owner does target one wrongdoer, just not both: the owner and its tenant. Enforcement against the tenant is for the legislature and for the owner to address, as discussed below.

Notably, petitioner expressly disavows any claim of respondents' selective enforcement of Administrative Code § 28-202.1 (1) or § 28-210.3. (See Matter of 303 W. 42nd St. Corp. v Klein, 46 [*4]NY2d 686, 693, 695-696 [1979]; Fields v Village of Sag Harbor, 92 AD3d 718, 719 [2d Dept 2012]; Matter of Liberty v New York State & Local Employees' Retirement Sys., 85 AD3d {**59 Misc 3d at 1014}1285, 1288 [3d Dept 2011]; Sonne v Board of Trustees of Vil. of Suffern, 67 AD3d 192, 203-204 [2d Dept 2009].) In any event, the record does not show that petitioner and its tenants are similarly situated: that their non-compliant conduct is similar or that enforcing these statutes will be similarly effective against owners and tenants, for example. (Bower Assoc. v Town of Pleasant Val., 2 NY3d 617, 631-632 [2004]; Dezer Entertainment Concepts, Inc. v City of New York, 8 AD3d 37, 38-39 [1st Dept 2004]; see 303 W. 42nd St. Corp. v Klein, 46 NY2d at 693; Fields v Village of Sag Harbor, 92 AD3d at 719; Sonne v Board of Trustees of Vil. of Suffern, 67 AD3d at 203-204.) Nor does the record show that the selective enforcement against owners is based deliberately on an impermissible standard such as their status within a protected class, their exercise of a fundamental right, or another invidious motive such as personal or political gain, unrelated to effective enforcement of the prohibition against transient use. (Matter of C/S 12th Ave. LLC v City of New York, 32 AD3d 1, 9-10 [1st Dept 2006]; Dezer Entertainment Concepts, Inc. v City of New York, 8 AD3d at 38-39; see 303 W. 42nd St. Corp. v Klein, 46 NY2d at 693, 695-696; Fields v Village of Sag Harbor, 92 AD3d at 719; Sonne v Board of Trustees of Vil. of Suffern, 67 AD3d at 203-204.)

Respondents' enforcement against building owners and not tenants or occupants derives from Administrative Code § 28-204.6.3, which authorizes respondent New York City Department of Buildings to issue NOVs only to building owners. Even were petitioner to so claim, this statute does not impermissibly discriminate against building owners in favor of the buildings' tenants or occupants simply because the statute may be underinclusive or fail to address all causes of transient use. (New York State Assn. for Affordable Hous. v Council of the City of N.Y., 141 AD3d 208, 217 [1st Dept 2016].)

B. Factors to be Considered in Assessing Penalties

[3] Nevertheless, there are factors that bear on the extent of the owner's laxity, negligence, or other wrongdoing in carrying out its responsibility to maintain a code-compliant building (Administrative Code § 28-301.1), to be taken into account when respondents assess discretionary penalties. One consideration is the owner's efforts to assure its tenants' compliance with the prohibition against transient use: conspicuous provisions in their leases that such use constitutes a default and will lead to termination of the tenancy and written warnings distributed to tenants and posted in the building, for example.{**59 Misc 3d at 1015} A second, related consideration is the owner's efforts to discover transient use, by monitoring the entry and egress of occupants who are not tenants' household members, for example. A third consideration is the owner's prompt corrective action once the transient use is discovered.

Here, the record is bereft of evidence regarding these first two considerations. Regarding corrective action, where the violation involves a tenant's conduct, and an owner must initiate an eviction proceeding to correct the violation, the process may be impossible to complete before the end of 45 days after receipt of the NOV, if it constitutes the owner's discovery of the violating condition. If the owner has discovered the violating condition before receiving the NOV, then correction may be possible sooner after the receipt, but here the record lacks any evidence or finding that petitioner discovered either violating condition before receipt of the NOV dated October 23, 2014, as well as any evidence or finding of the violating conditions before that date.

Not until 32 days later, on November 24, 2014, however, did petitioner serve a notice of termination of the tenancy of apartment 4G as a condition precedent to initiating an eviction proceeding. (Verified petition ¶ 16 and exhibit D; verified answer ¶ 94 and exhibit G.) While no evidence discloses any further delays in the eviction proceeding attributable to petitioner, this delay is unexplained and extended over two thirds of the 45 days for which respondents assessed their penalties and over almost 85% of the 38 days to which the court has reduced the penalties. To petitioner's credit, the notice of termination did result in the tenants' departure and hence correction of the violation six days later, but that result also demonstrates, on the other hand, that a prompter notice of termination might have produced a prompter cure of the violation.

Petitioner did react more promptly regarding apartment 9C. Petitioner waited 12 days before serving a notice of termination of the tenancy of apartment 4G on November 4, 2014. (Verified petition ¶ 16 and exhibit D; verified answer ¶ 94 and exhibit G.) Again no evidence discloses any further delays in the eviction proceeding attributable to petitioner, but the delay of 11 days is still significant and unexplained, and the tenants' departure more than two months after the 45 days demonstrates that initiation of an eviction proceeding may not be expected to produce a prompt correction of the violation.{**59 Misc 3d at 1016} Therefore it was incumbent on the owner to take as prompt action as possible regarding both apartments to effect the correction in even one apartment.

C. Disproportionality

Using petitioner's initiation of corrective action against both apartments as of November 24, 2014, as a measure in assessing the penalties, the determination boils down to whether the penalties assessed after that date are disproportionate to petitioner's misconduct because, beginning then, petitioner was taking all actions possible to eliminate the violation. (Matter of Kelly v Safir, 96 NY2d 32, 38 [2001]; Matter of Silverman v Carrion, 146 AD3d 570, 571 [1st Dept 2017]; Matter of Asch v New York City Bd./Dept. of Educ., 104 AD3d 415, 421 [1st Dept 2013]; Matter of Konstas v Environmental Control Bd. of City of N.Y., 104 AD3d 689, 690 [2d Dept 2013].) The harm to the public, based on the legislative purpose underlying Administrative Code § 28-210.3, however, continued until November 30, 2014.

Petitioner also points out that it did not profit from its tenants' transient use of their apartments, but the owner's profit from a code violation bears little relation to the hazard that the violation creates, here a reduction of the permanent housing stock and a further violation of requirements for the building's fire alarm system. On the other hand, the violation and petitioner's associated conduct do not display any "grave moral turpitude" or "grave injury . . . to the public." (Kelly v Safir, 96 NY2d at 33; see Matter of Inglese v LiMandri, 89 AD3d 604, 605 [1st Dept 2011].)

The court may overturn the penalty imposed by respondents' appeal decision and order following the ECB hearing officer's recommendation only if the penalties are so disproportionate to the violation and to petitioner's misconduct as to shock the conscience or a sense of fairness. (Matter of Harris v Mechanicville Cent. School Dist., 45 NY2d 279, 284-285 [1978]; Matter of Brito v Walcott, 115 AD3d 544, 546 [1st Dept 2014]; see Matter of Russo v New York City Dept. of Educ., 25 NY3d 946, 948 [2015]; Kelly v Safir, 96 NY2d at 38; Silverman v Carrion, 146 AD3d at 571; Asch v New York City Bd./Dept. of Educ., 104 AD3d at 421.) The hearing officer typically is in a "far superior position" than the court in reviewing the hearing record to assess a penalty warranted by the record, since the hearing officer observed and heard the witnesses' testimony. (Asch v New York City Bd./Dept. of Educ., 104 AD3d at 421; see City School Dist. of the City of N.Y. v McGraham, 17 NY3d 917, 920 [2011].){**59 Misc 3d at 1017}

Here, however, neither the hearing officer's recommendation nor respondents' final decision reflects any consideration or balancing of factors bearing on the proportionality of the discretionary penalties to be assessed. Nor did petitioner present any such factors in its favor. Petitioner simply challenged the assessment of discretionary penalties altogether because it was unaware of the violations and they implicated the tenants' misconduct. The hearing officer and respondents mechanically assessed the maximum discretionary penalties by rote, resulting in their failure to consider the correction of the second violation before the end of the maximum 45 days of daily penalties. The hearing officer and respondents likewise failed to consider the extent of harm to the public from the transient use of petitioner's apartments or that petitioner engaged in no conduct exhibiting poor moral character, derived no profit from the transient use, and as of November 24, 2014, was taking all actions possible to eliminate the violations. (Kelly v Safir, 96 NY2d at 38-39; Inglese v LiMandri, 89 AD3d at 605; Konstas v Environmental Control Bd. of City of N.Y., 104 AD3d at 690.)

Nevertheless, petitioner's lack of expedient steps to correct the violations would not permit reduction of the discretionary penalties to any date earlier than November 24, 2014. While respondents' mechanical assessment of the maximum discretionary penalties by rote is not [*6]to be condoned, even if the above factors were to be considered by respondents, the assessment of six more days of daily penalties, until November 30, 2014, would not abuse their discretion. (Matter of BarFreeBedford v New York State Liq. Auth., 130 AD3d 71, 77-78 [1st Dept 2015]; Matter of South Bronx Unite! v New York City Indus. Dev. Agency, 115 AD3d 607, 610 [1st Dept 2014]; Matter of Che Lin Tsao v Kelly, 28 AD3d 320, 321 [1st Dept 2006]; see Russo v New York City Dept. of Educ., 25 NY3d at 948; Kelly v Safir, 96 NY2d at 38-39; Silverman v Carrion, 146 AD3d at 571; Asch v New York City Bd./Dept. of Educ., 104 AD3d at 421.) In Konstas v Environmental Control Bd. v City of N.Y. (104 AD3d at 690), for example, the Court upheld a $25,000 penalty for illegal conversion of a residence for occupancy by more than the authorized number of families. Although this violation appears more hazardous than petitioner's violation, in upholding the penalty, the court did not conclude that a higher penalty would have been impermissible.

Here, petitioner provides no basis to conclude that $32,000 in penalties is permissible but $38,000 is an abuse of discretion.{**59 Misc 3d at 1018} Therefore the court limits its reduced penalties to $38,000. ECB's determination to assess discretionary penalties beyond the date that the violating condition was corrected is consistent with Administrative Code §§ 28-202.1 (1) and 28-210.3 and 1 RCNY 102-01 (g) (1) and thus rational, with a sound basis in the law. (CPLR 7803 [3].) Even if the statutes or regulation allow lesser discretionary penalties, the alternative dates at which to end the penalties requires the court to give ECB's assessment deference and uphold it as reasonable. (See Golf v New York State Dept. of Social Servs., 91 NY2d at 667; Chin v New York City Bd. of Stds. & Appeals, 97 AD3d at 487; Espada 2001 v New York City Campaign Fin. Bd., 59 AD3d at 64.)

The determination of this proceeding thus turns on whether respondents' interpretation and application of the Administrative Code and its implementing regulations were erroneous and without any material dispute concerning the evidentiary support for respondents' administrative determinations. Although the petition claims otherwise, petitioner now maintains that its basis for vacatur of the discretionary penalties is not that respondents' determinations are unsupported by substantial evidence. Nor do respondents identify any outstanding issue whether substantial evidence supports their determinations that require a transfer of this proceeding to the Appellate Division. (CPLR 7803 [4]; 7804 [g]; Silverman v Carrion, 146 AD3d at 571; Matter of Joseph Paul Winery, Inc. v State of New York, 135 AD3d 639, 639 [1st Dept 2016]; Matter of Dillin v Waterfront Commn. of N.Y. Harbor, 119 AD3d 429, 429 [1st Dept 2014]; Earl v Turner, 303 AD2d 282, 282 [1st Dept 2003].)

For the reasons explained above, the court grants the petition to the following extent. (CPLR 409 [b]; 7803 [3]; 7806.) The court vacates ECB's determination finding that petitioner failed to prove that the violating condition had been corrected before February 10, 2015, because that determination is unsupported by and contrary to Administrative Code § 28-210.3 and 1 RCNY 102-01 (g) (1) and thus arbitrary. (CPLR 7803 [3].) Therefore ECB's assessment of penalties from November 30, 2014, when the condition was corrected, to December 7, 2014, is contrary to Administrative Code § 28-210.3 and 1 RCNY 102-1 (g) (1), is arbitrary, and must be vacated.

Within 30 days after entry of this order, respondents shall remit all discretionary penalties that petitioner paid in excess{**59 Misc 3d at 1019} of $38,000 for the violations cited October 23, 2014. If respondents fail to pay petitioner as required, it may enter a judgment against respondents for $7,000. The court otherwise denies the petition and dismisses this proceeding. (CPLR 409 [b]; 7803 [3]; 7806.)