STATE OF NEW YORK
DIVISION OF HOUSING AND COMMUNITY RENEWAL
OFFICE OF RENT ADMINISTRATION
GERTZ PLAZA
92-31 UNION HALL STREET
JAMAICA, NEW YORK 11433
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IN THE MATTER OF THE ADMINISTRATIVE : SJR 4671 (deemed denial)
APPEAL OF ADMINISTRATIVE REVIEW
: DOCKET NO. DI 410106-RO
PAN AM EQUITIES, INC., DRO DOCKET NO. L-3115984-R
PETITIONER :
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ORDER AND OPINION DENYING PETITION FOR ADMINISTRATIVE REVIEW
On September 12, 1989 the above named petitioner-owner filed a Petition
for Administrative Review against an order issued on August 8, 1989 by
the District Rent Administrator, 10 Columbus Circle, New York, New York
concerning housing accommodations known as Apartment 4A at 124 Second
Avenue, New York, New York wherein the District Rent Administrator
determined that the owner had overcharged the tenants.
Subsequent thereto, the petitioner-owner filed a petition in the Supreme
Court pursuant to Article 78 of the Civil Practice Law and Rules
requesting that the "deemed denial" of its Petition for Administrative
Review be annulled. The proceeding was remitted to the DHCR, and the
owner's petition is herein decided on the merits.
The Commissioner notes that this proceeding was filed prior to April 1,
1984. Sections 2526.1(a)(4) and 2521.1(d) of the Rent Stabilization Code
(effective May 1, 1987) governing rent overcharge and fair market rent
proceedings provide that determination of these matters be based upon the
law or code provisions in effect on March 31, 1984. Therefore, unless
otherwise indicated, reference to sections of the Rent Stabilization Code
(Code) contained herein are to the Code in effect on April 1, 1987.
The issue in this appeal is whether the District Rent Administrator's
order was warranted.
The applicable sections of the Law are Section 26-516 of the Rent
Stabilization Law, Section 2526.1(a) of the current Rent Stabilization
Code and Section 42A of the former Rent Stabilization code.
The Commissioner has reviewed all of the evidence in the record and has
carefully considered that portion of the record relevant to the issue
raised by the administrative appeal.
This proceeding was originally commenced by the filing in March, 1984 of a
rent overcharge complaint by the tenants (Janet Rogers and Adele DeWitt),
in which they stated that they had commenced occupancy on October 30, 1983
at a rent of $715.00 per month.
DOCKET NO.: DI 410106-RO
The owner was served with a copy of the complaint and was requested to
submit rent records to prove the lawfulness of the rent being charged. In
an October 17, 1984 answer to the complaint, the owner submitted a rental
history form whose contents it claimed had been approved by the New York
State Attorney General's office. Such rental history showed the rent of
the initial stabilized tenants increasing from $379.15 to $481.47 during
the course of four one-year leases, and an increase to $715.00 for the
complainant's first lease based on a claim that the "apartment was fully
renovated prior to the tenants moving in."
In response, the tenants claimed that their apartment had not been
renovated but merely painted as required by law.
On June 11, 1986 the owner was sent a Final Notice of Pending Default,
which stated in substance that unless a complete rental history from the
base date was submitted within 20 days, certain DHCR procedures would be
used to establish the lawful rent, and treble damages would be imposed on
willful overcharges occurring on or after April 1, 1984.
In a response dated October 10, 1986, the owner asserted in substance
that an Assurance of Discontinuance entered into between it and the
Attorney General precluded the DHCR from determining lawful rents and
overcharges for the period of time reviewed in the rental history form
submitted to the Attorney General; that there was no overcharge shown for
the period; that the current lawful rent was to be based on the registered
April 1, 1984 rent; and that there had been only lawful increases taken
since April 1, 1984.
On October 14, 1986 the owner was sent another Final Notice of Pending
Default.
In another response dated March 9, 1989 the owner contended in substance
that the tenants' complaint was filed on October 23, 1984; that April 1,
1984 was the base date since the complaint was filed after April 1, 1984,
and more than 90 days after the service of the initial registration; and
that there had been no overcharge since April 1, 1984. The owner also
withdrew its claim that the DHCR did not have jurisdiction. With its
response the owner included a copy of the tenants' complaint bearing no
date stamp, having "3115984" stamped on the back, and having been dated
October 23, 1984 by the tenants. The original complaint in the file of
the proceeding before the Administrator does have a CAB date stamp of
March 28, 1984, but does not have "3115984" stamped on the back. The
docket number was stamped individually on the front of the original and of
the owner's copy. A close comparison of the original and the owner's copy
reveals them to be identical with those three exceptions. Every slightest
handwritten mark on the original is exactly duplicated on the owner's
copy, which indicates that the owner's copy is a photocopy made of the
original before anything was stamped on the reverse side of the original.
On May 26, 1989 and June 26, 1989 the owner was sent other Final Notices
of Pending Default. With both of the notices was enclosed a copy of the
tenants' complaint date-stamped on March 28, 1984.
DOCKET NO.: DI 410106-RO
In an order issued on August 8, 1989 the District Rent Administrator found
that the owner had failed to substantiate the base date rent, and applied
established DHCR default procedures to determine the tenants' lawful
initial rent. By freezing the rent and imposing treble damages on
overcharges occurring on or after April 1, 1984, the Administrator
calculated total overcharges of $91,979.12 from October 16, 1983 through
August 31, 1989. The Administrator directed the owner to refund such
overcharges to the tenants as well as to reduce the rent.
In this petition the owner contends in substance that its copy of the
complaint clearly showed that it was not filed prior to April 1, 1984;
that the DHCR never informed the owner of the existence of an envelope
postmarked March 26, 1984 and of a date-stamp of March 28, 1984 on the
complaint; that the owner therefore did not have an opportunity either to
submit a pre-April 1, 1984 rental history or to contest the date of filing
of the complaint; that the complaint may have been back-dated by the DHCR;
that the complaint may have been filed unsigned and only signed later on
October 23, 1984; that if the complaint was indeed "filed" on October 23,
1984 by being signed on that date, then April 1, 1984 would be the base
date since October 23 is more than 90 days after the tenants were served
with the initial apartment registration on June 15, 1984; that the owner,
making a good faith effort to determine and refund any overcharges,
calculated that there was no overcharge after the (apparent) base date of
April 1, 1984; and that at least a hearing should be held on the issue of
the date of filing of the complaint.
In answer to the owner's petition, the tenants assert in substance that a
lack of concentration, and the fact of one tenant having just written
"10/30/83", "10/16/83", and "10/31/84" on the front of the complaint led
her to date the complaint as "10/23/84" rather than "3/23/84"; that the
signed complaint was actually filed prior to April 1, 1984; that the owner
repeatedly failed to comply with the DHCR's requests for a full rental
history, although such requests informed the owner that the complaint was
filed prior to April 1, 1984; that the DHCR was not obligated to prove to
the owner that it was proceeding lawfully, that the owner could have
inspected the file pursuant to the Freedom of Information Law to determine
when the complaint was filed; and that it was proper for the Administrator
to apply the default procedure.
On February 21, 1990 the owner was sent a copy of the tenants' complaint
date-stamped March 28, 1984, of the envelope postmarked March 26, 1984,
and of the owner's answer of October 17, 1984, with the comment that the
owner's answer to the tenants' complaint was dated prior to the time that
the owner claimed the tenants had signed the complaint. In reply, the
owner states that the information now supplied it indicates the DHCR's
entitlement to pre-April 1, 1984 rent records, and contends in substance
that the proceeding should be remanded to the Administrator to allow the
owner an opportunity to recalculate the tenants' rent and to refund any
overcharge, based on the default formula, since the owner does not have
sufficient documentation to support the rent charged; that such lack of
documentation, as well as the overcharge and even the owner's lack of
awareness that an answer had been submitted on October 17, 1984, was the
result of alleged fraudulent practices, including falsification and
removal of records, by two former top management employees acting outside
the scope of their employment; that the owner would have calculated the
overcharge and made a refund prior to the Administrator's order if only it
had been furnished by the DHCR with the information necessary for it to
realize that lawful rents needed to be based on a base date prior to April
1, 1984; and that treble damages should not be imposed, as the peculiar
DOCKET NO.: DI 410106-RO
facts of this case indicate that any overcharge was not willful. The
owner also states that, while it is willing to make a refund, one tenant
vacated at a unknown time, making the proper apportionment of the refund
problematical.
In response to the owner's submission, one tenant asserts in substance
that the owner's present willingness to "voluntarily" refund the
overcharge is not evidence of good faith as a refund (with treble damages)
is already mandatory; that a refund of overcharges serves to preclude the
imposition of treble damages only if such refund is made prior to the
issuance of an order in a proceeding; that the DHCR has the right, subject
to judicial review, to order parties to produce documents; and that a
party may not unilaterally decide that it does not have to provide records
unless the DHCR proves to its satisfaction that a complaint was filed
prior to April 1, 1984. The tenant also contends in substance that the
overcharge should be considered willful, and treble damages imposed,
because the willful act of a corporate officer in charge of leasing must
be imputed to the owner, since such a person is acting within the scope
of his authority when setting and/or charging rents, even unlawful ones;
because the owner did not make any attempt to investigate when the rent
for the subject apartment increased dramatically; because the owner
failed to properly supervise its employees to ensure that such willful
overcharges would not occur; and because the owner's willful obstruction
and frustration of the DHCR's investigation may not serve as a basis for a
demonstration of good faith or non-willfulness. The tenant further
asserts that legal expenses of over $6,000 and interest of approximately
$14,000 should be added to any overcharge award.
In later supplements to its petition, the owner contends in substance that
while it is willing to reset the rent of the subject apartment based on
the DHCR's default formula, it does not feel that the Administrator should
have frozen the lawful rent at the default rent from 1983 to the present,
particularly since the tenants had renewal leases and since the default
rent is lower than that paid by the prior tenant; that it has no record
for the apartment other than those already submitted, and was not even
aware of the October 17, 1984 answer, due to the unauthorized actions of
two former employees whom it is suing; and that treble damages are not
warranted. The owner also asserts in substance that the proceeding be
remanded in accordance with the DHCR policy that a landlord must be
provided the complete record so that a proper reply can be made, and so
that a refund can be made if it appears there is an overcharge.
The Commissioner is of the opinion that this petition should be denied.
A summary of the facts mentioned earlier regarding the circumstances of
the filing and service of the tenants' complaint is as follows: The
tenants mailed a complaint (dated October 23, 1984 for some unknown
reason, probably meant to be March 23) on March 26, 1984. Upon receipt
two days later by the Conciliation and Appeals Board, a photocopy was
made. Both original and copy were individually stamped on the front with
the docket number. The original (only) was date-stamped on the back, and
the copy (only) was stamped with a docket number on the back. The copy
was mailed to the owner on October 11, 1984, according to the Rent
Examiner Progress Report (which report does not make any mention of an
unsigned complaint or of the tenants coming in to sign it, most especially
not coming in to sign it on October 23, 1984, subsequent to the time that
the copy of the [signed] complaint was sent to the owner). The owner then
submitted an answer on October 17, 1984. The Commissioner finds that the
preponderance of the evidence indicates that the complaint was properly
filed prior to April 1, 1984. The owner was therefore obligated to
DOCKET NO.: DI 410106-RO
furnish a rental history from June 30, 1974 or a later (proven) base date.
The owner was given another opportunity to do so on February 21, 1990, but
has indicated that it is unable to furnish such a rent history. It is
therefore proper to uphold the Administrator's use of established DHCR
default procedures to determine the lawful rents. While it is true that
the calculated default rent is less than that allegedly charged the prior
tenants, such prior rent has not even been shown to be lawful itself. The
Commissioner notes that the default procedures, as adopted by the
Conciliation and Appeals Board and ultimately affirmed by the Court of
Appeals, provide that there be no vacancy or Guidelines increase until the
time of the C.A.B.'s [now DHCR's] order. The rationale behind this is
that the procedures, in addition to being a way to set a rent, are a
penalty to be applied when an owner has defaulted in its obligations under
Section 42A. It was not an error for the Administrator to follow DHCR
procedures and impose this penalty for the owner's default.
Section 2526.1(a)(1) of the current Rent Stabilization Code provides in
pertinent part that an owner shall be liable for treble damages for
overcharges occurring on or after April 1, 1984, unless the owner can
establish by a preponderance of the evidence that the overcharges were not
willful, in which case interest is to be imposed. It is generally DHCR
policy that the presumption of willfulness that arises when an overcharge
is found (and which results in the imposition of treble damages) is not
rebutted simply because negligence in supervision allows a lower level
employee to make either accidental or deliberate errors, since an owner is
bound to take steps to ensure that only lawful rents are charged, and
since otherwise the large loophole available by alleging "human error"
would effectively shift the burden of proof away from a presumption of
willfulness. Since negligent supervision of lower level employees does
not rebut the presumption of willfulness on the part of the owner, it is
all the more appropriate that the deliberate actions of a corporate
officer (in fact the very person who would be responsible for ensuring
that lower level employees did not make "errors" that would result in
treble damages), an officer with the right to bind the corporation, in
overcharging not fail to impute willfulness to the owner just because the
officer was inadequately controlled. It is useful to consider that, under
the new Code, a current owner is responsible for treble damages both on
the overcharges collected on and after April 1, 1984 by a previous owner
(even though the current owner did not collect the overcharges itself and
would almost certainly not have been aware of them as they were being
collected by the previous owner), as well as overcharges which it collects
based on otherwise appropriate percentages of increase over an (unknown to
the new owner) unlawful lease rent inherited from the previous owner. In
addition, even the failure to submit a rental history to substantiate an
otherwise reasonable-appearing rent can result in the imposition of treble
damages, despite the fact that the necessary rent records may have been
accidentally destroyed or lost, or not even furnished by a prior owner.
In light of these policies it would be all the more inappropriate for the
owner to escape liability for treble damages based upon acknowledged
willful overcharges by a corporate officer. Even aside from the strong
presumption of willfulness that arises when there is an overcharge, the
owner has not shown that it did not benefit from the overcharges. (In
fact, in its lawsuit against its former employees [a copy of which is
contained in the file for Docket No. ARL 13522-L], the owner seems to
allege that excess rents were not generally being kept by its employees,
but were being used to raise the base on which the employees were getting
a percentage of rent as illegal kickbacks and "co-brokerage" fees.) The
owner may not escape liability to innocent 3rd parties by alleging
unauthorized actions by its employees; its remedy is to proceed in court
against those employees for damages which their actions may have caused.
DOCKET NO.: DI 410106-RO
While DHCR policy (as recently made explicit in Policy Statement 89-2)
would allow an owner to escape treble damages on even egregiously willful
overcharges so long as a refund is made within the time permitted to
answer the complaint; while earlier policy was that a refund prior to the
issuance of the Administrator's order would avoid the imposition of treble
damages; and while the owner might be able to contend that this "grace
period" should be extended in the present case where it relied on the
Assurance of Discontinuance, and later on the "10/23/84" date put on the
un-date-stamped complaint, as justification for believing that there had
been no lawful increases over the April 1, 1984 base date rent requiring
refunds, the owner was sent another copy of a date-stamped complaint with
a Final Notice of Pending Default on June 29, 1989 (as well as being sent
on May 26, 1989 a copy that was almost certainly date-stamped), after it
had on March 14, 1989 changed its reliance from the Assurance of
Discontinuance to claim of an April 1, 1984 base date. There is no
evidence that the owner made any refund of overcharges within 20 days of
June 29, 1989. In fact, the owner has apparently not made any refund at
least as of April 4, 1990 (six weeks after being sent a copy of the March
26, 1984 postmarked envelope and of its October 17, 1984 answer as well as
of the date-stamped complaint), although it acknowledges it cannot justify
the rents charged, since it requests a remand to recalculate the rent
(without freezing the tenants' initial rent) and to give it an opportunity
to make a refund. The Commissioner does not find that the limited
exemption from (customary) treble damages conferred by prompt voluntary
refund of overcharges is appropriate under the facts of this case.
With regard to the method of refund of the overcharge and penalties, the
owner is directed to do one of the following:
1) Within thirty days of the issuance of this order, tender
to the tenants a check for the total amount of the
overcharge and penalties payable to the order of "Janet
Rogers and Adele DeWitt"; or
2) Tender to either tenant (Janet Rogers or Adele DeWitt) a
check for the full amount of the overcharge and
penalties upon presentation by such tenant to the owner
of a written instrument in proper form duly executed by
the other tenant releasing the owner from any further
liability for such refund.
If the owner does not perform either of these two options, the tenants
may, upon the expiration if the period in which the owner may institute a
proceeding pursuant to Article 78 of the Civil Practice Law and Rules,
file and enforce this order in the same manner as a judgment.
Regarding the contention in the tenant's answer that attorney's fees and
additional interest to date should be imposed: this contention could only
properly be considered if raised in the tenant's own petition against the
Administrator's order, rather than in an answer to the owner's petition.
This order is without prejudice to any rights which the tenant may have
to raise this claim in a court of competent jurisdiction.
Because of the possibility that the rents charged were not reduced after
the Administrator's order, the owner is cautioned to adjust the rent, in
leases after those considered by the Administrator, to amounts no greater
DOCKET NO.: DI 410106-RO
than that determined by the Administrator's order plus any lawful
increases, and to register any adjusted rent with the Administrator's
order being given as the reason for the adjustment.
THEREFORE, in accordance with the Rent Stabilization Law and Code, it is
ORDERED, that this petition be, and the same hereby is, denied and that
the Administrator's order be, and the same hereby is, affirmed. The total
overcharge, including excess security of $563.96, is $91,979.12 as of
August 31, 1989.
ISSUED:
ELLIOT SANDER
Deputy Commissioner
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