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.