Bleak House: Finding Three


FINDING THREE

DHCR HAS BEEN SYSTEMATICALLY VIOLATING THE PROVISIONS OF THE RENT
STABILIZATION LAW AND CODE IN ITS PROCESSING OF THE CASE BACKLOG.
CLEAR STATUTORY MANDATES AND DHCR'S OWN DUE PROCESS PROCEDURES
HAVE BEEN IGNORED BY THE DIVISION AND REPLACED BY A PROCESSING
SYSTEM WHERE PRODUCTION IS THE PRIMARY GOAL AND LEGAL RIGHTS AND
OBLIGATIONS ARE APPLIED IN A RANDOM AND CAPRICIOUS MANNER.


By the spring of 1986, DHCR apparently realized it could not,
even using the false information it had provided to the
Legislature, process 17,000 cases by its self-imposed September
1986 deadline. The reason was that it had saved the most
difficult cases, those requiring the most time and attention, for
last. These cases involved overcharge complaints by rent
stabilized tenants filed prior to April 1st, 1984. Decisions in
such cases require the Division to reconstruct rent histories for
the subject apartments. In many cases such histories must go back
as far as 1974 or 1968, depending upon when the apartment first
became subject to the rent stabilization law.

In order to meet its own deadline, DHCR brought a new supervisor
to the backlog unit, instituted new procedures and conveyed a
general direction to the staff that, as rent examiner David
Saphire put it, "Production is all that counts." Rent examiner
Garvin Lee Kong testified that "We are under [a] quota system and
I know we're supposed to produce x amount of cases per day
regardless of quality." "We were informed directly that he didn't
care if the cases were right or wrong, he just wanted them out,"
testified another examiner, Elliot Vizansky, about his
supervisor, Ed Rasquin.


Procedures Changed, Laws Systematically Violated

A number of procedures were apparently changed in order to
improperly speed up the resolution of the backlog. One example
was the change which was made by the Division in the legal "base
dates" used in calculating rental histories in overcharge
complaints filed prior to April 1st, 1984. The Rent Stabilization
Law and Code require that rental histories in most such cases be
calculated back to either 1968 or 1974, depending upon when an
apartment first became subject to the rent stabilization law.

On July 29th, 1986, the Deputy Director of the Backlog Unit,
Eugene Kelly, issued a memorandum to all DHCR staff which
directed rent examiners "effective immediately" to use 1974 as
the base date for calculating all overcharge complaints, even if
the correct legal base date in a case was 1968. If an examiner
had leases reconstructing the rent history back prior to 1974,
noted rent examiner Elsie Carney, "You would ignore that and
process the case from June 30th, 1974."

Using 1974 as the base date in all cases allowed DHCR to speed up
case processing but at a steep price since the use of the date
was in clear violation of the provisions of the Rent
Stabilization Law and Code and could well have resulted in
thousands of tenants being deprived of tens of thousands of
dollars of rent overcharge refunds to which they were entitled.

In a January 1987 meeting with Commissioner Eimicke and Deputy
Commissioner Mirabal, Assemblyman Grannis pointed out that the
memo was incorrect and asked Deputy Commissioner Mirabal to audit
all overcharge cases processed since the memo was issued. The
Director of the Backlog Processing Unit, Joseph Cordero,
testified that he and Deputy Director Kelly, at the direction of
Deputy Commissioner Mirabal, personally conducted such an audit
of all of the approximately 6,500 cases they claimed had been
processed since the memo had been issued and found that only 31
cases were "possibly wrong."

From testimony and information received during the investigation,
however, it appears that this audit reviewed only the final
orders issued and not the entire case files. Final orders require
the examiner to note the legal base date in a case but do not
require a detailed explanation of how the base date was
determined. Since rent examiners were under orders to use 1974 as
the base date in all cases, most of the orders which were audited
were apparently deemed correct simply because the 1974 date was
written on the order as the correct base date by the examiner

Mr. Kelly testified that, based on the audit, he believed "The
memorandum did not confuse the staff," (i.e., the staff did not
follow the memorandum's explicit direction to use 1974 as the
base date in all cases) "or deprive any tenant of their
rights..." From the testimony, however, it appears that the audit
may well have been useless in determining whether orders were
issued correctly or not since its scope was probably insufficient
to pick up the majority of errors which were made.

Two rent examiners employed in the backlog unit who appeared at
the hearing each testified that they had processed hundreds of
cases following the directives in the Kelly Memorandum. One
examiner testified that other examiners in the unit also followed
the directions in the memo.

Perhaps most disturbing, although DHCR has acknowledged that the
Kelly Memorandum may direct rent examiners to process cases
contrary to the provisions of the Rent Stabilization Law, it is
apparently still in effect and being used in processing cases
today. Rent examiner Elsie Carney testified she was still
processing cases in accordance with the memo when she was
transferred from the backlog unit three months ago. Elliot
Vizansky testified that he continues to follow the memorandum's
directives today. DHCR acknowledges that no written directive to
retract, modify or clarify the memo has ever been issued.

In sum, it appears that a large number of tenants may have been
deprived of substantial sums of money because of DHCR's
systematic violation of the base date provisions of the Rent
Stabilization Law and Code. The Division's attempt to correct the
problem involving past cases appears to have been ineffective and
cases continue to be processed incorrectly today.

Rent examiners testified, and tenants and owners confirmed, that
other procedures were widely used to improperly speed up
processing. As was noted earlier, many cases are closed because
responses made by tenants and owners never make it to their
files. Rather than allow time to elapse so that mail can be found
and added to the official case file, however, testimony indicated
that examiners often close cases quickly under the pressure of
meeting production quotas. As rent examiner David Saphire
testified:

     "In our unit, there is a very strong emphasis on a
     push for production. We were given a quota. We
     have been stressed at meetings that production is
     all that matters. Production is what counts.
     Working under those circumstances as employees we
     are eighty percent provisionals, (i.e., without
     job tenure or security) their primary purpose
     becomes to close cases to meet quotas so you do
     not have a confrontation with the supervisor. So
     what happens is if you don't have the mail coming
     back within the period and you have to get cases
     out because you have to meet the quota, a great
     many cases on the owner and tenant are defaulted."

Rent examiner Elliot Vizansky noted that during 1986 the
division's due process procedures changed to increase production
output. Before 1986, each contention made by a party in a case
was sent to the opposing party for a response. That procedure was
changed subsequently with owners' responses to tenants'
complaints and tenants' responses to owners' answers no longer
sent to opposing parties. Several tenants and owners testified
that, upon examining their case files, they discovered they had
never received contentions made by opposing parties in their
cases and consequently had not provided DHCR with important
evidence relevant to their cases.

Another change which was apparently made by DHCR in 1986 was in
the standards DHCR used in accepting affirmations from attorneys
in lieu of leases or other evidence in cases. From information
received by the committees, DHCR apparently accepted affirmations
from attorneys as evidence in lieu of leases or other
documentation only in very limited circumstances prior to 1986.
Since the beginning of 1986, however, rent examiner Elliot
Vizansky testified that he had been directed to accept
affirmations from lawyers without backup documentation on a
routine basis. Vizansky testified that when he received
affirmations, he would bring them to one of his supervisors and
they would decide on a case-by-case basis which affirmations
would be accepted.

In practice, Vizansky testified, affirmations were accepted in
most cases from two Manhattan law firms, Rosenberg & Estis and
Finkelstein Borah Schwartz Altshuler & Goldstein. Later
discussions between Vizansky and Housing Committee staff
clarified the fact that all of the affirmations Vizansky had
received from lawyers had come from these two firms. Other law
firms may have either been unaware of DHCR's affirmation policy,
chosen not to utilize it, or simply not come to the committees'
attention.


Damage Awards -- Based on a Roll of the Dice

Some procedures and directives were apparently changed by DHCR in
order to expedite the processing of the backlog. Others were
simply arbitrary to begin with.

To take an example, the Rent Stabilization Law requires that
treble damages be imposed on overcharge complaints for any
portion of the overcharge which occurs subsequent to April 1st,
1984. The law allows treble damages to be waived if the owner can
demonstrate that the overcharge was not willful. DHCR apparently
assesses treble damages, however, at least at the Columbus Circle
Office where the backlog cases are processed, in systematic
violation of these provisions of the Rent Stabilization Law.
According to testimony, DHCR has no uniform or written standards
for when to assess treble damages. The criteria have apparently
changed repeatedly over time and depend more upon the personal
preferences of supervisors, the need to increase "production" or
the particular rent examiner handling the case than upon any
uniformly applied legal standard. Rent examiner Elsie Carney
testified that:

     "In my unit, treble damages were only awarded when
     it was considered the owner did not register the
     building. However, I know in some units, they used
     willful, but no one ever described to me what
     willful was on a default case.

Ms. Carney testified further that she personally did not, except
for some cases where the owner defaulted by failing to answer a
complaint, assess treble damages because: "My supervisor didn't
like treble damages."

Rent examiner Elliot Vizansky testified that prior to 1986, he
assessed treble damages when an overcharge was considered
"willful", when a building was not registered or when an owner
defaulted by failing to answer the tenant's complaint. These
standards changed over time, however.

First, Mr. Vizansky testified, "willful" overcharges were no
longer assessed treble damages and damages were only assessed in
cases where the building was not registered or the owner
defaulted. Mr. Vizansky testified further that treble damage
standards in his office had recently changed again:

     "A couple of weeks ago, we were told, well, we
     can't really trust our own system of registration
     because we don't know. Some people say they were
     registered and some say they weren't and we don't
     know for sure so we can't trust our own computers
     and we were told not to do it for those that
     weren't registered and just treble damages for
     those owners that did not respond in any formal
     manner. If they responded by saying, 'I am not
     going to respond,' that was a response."

Based on the testimony, it appears that a large number of cases
may have been processed in violation of the treble damage
provisions of the Rent Stabilization Law and Code. These
violations of law may well have cost tenants tens of thousands of
dollars in rent overcharge refunds and owners an undetermined
amount in improper overcharge penalties.

Other processing procedures, while not contrary to law, similarly
provide refunds to tenants and assess damages against owners in
completely random and arbitrary ways. For example, when an owner
defaults, that is, does not answer a tenant's overcharge
complaint (or the complaint is answered but is sitting in a box
of unopened DHCR mail or is lost by the agency), DHCR must
calculate a rent for the tenant's apartment. The standards for
calculating such rents and ordering refunds for tenants,
according to testimony from DHCR rent examiners, were different,
depending on which rent examiner happened to be handling the
case, what supervisor the examiner worked for and whether there
was a push to "increase production" at the time.

Rent examiner Elsie Carney testified that the calculations used
in determining rents in default cases "changed consistently"
during her time in the backlog unit.

     "As far as the default cases, some of the rent
     examiners were using the complaining tenant's rent
     minus the guideline increase and some of us were
     using the prior tenant's rent minus the guideline
     increase, but I have also used, my supervisor
     liked to use, the complaining tenant's rent so
     that is what I always used."

It is important to note that differences in such calculations can
result in radically different legal rent determinations which
have significant financial consequences for both owners and
tenants. Rent examiner Elliot Vizansky noted that the difference
in refund amount between the set of calculations he used pursuant
to the directives of his supervisor in the beginning of 1986, and
the set he used at the end of 1986, might equal $16,000 for only
a single case.