Bleak House: Finding Four

FINDING FOUR

DHCR HAS IMPROPERLY DISMISSED OR GIVEN FAVORABLE TREATMENT TO AN
UNDETERMINED NUMBER OF CASES INVOLVING CERTAIN REALTY AND
MANAGEMENT COMPANIES WHICH ENTERED INTO AGREEMENTS WITH THE STATE
ATTORNEY GENERAL'S OFFICE.


When the Attorney General's office encounters conduct which it
believes may be violative of law but does not warrant
prosecution, it may enter into an "Assurance of Discontinuance"
with the party in question. The party will specifically agree to
abstain from certain actions or take certain steps to correct
improper actions and to assure that they will not engage in the
activity which the Attorney General seeks to prohibit. Evidence
presented at the Assembly's hearings indicated that such
Assurances of Discontinuance have been used by DHCR to both close
cases which should have been processed and give favorable
treatment to firms involved in such assurances when no such
special treatment was warranted.

In one example discussed at the hearing, the Attorney General's
office entered into an Assurance of Discontinuance with the Argo
Realty Company initially covering certain specified apartment
buildings owned or managed by Argo. Pursuant to the Assurance,
Argo agreed to conduct an audit of the rental histories of a
specified number of its apartments, refund monies to any tenants
who the audit found had been overcharged, and, if a pervasive
pattern of overcharging was revealed by the audit, expand its
scope to cover additional apartments. The Assurance provided that
it was not to be construed to deprive any tenant from pursuing
any rights or remedies in a court of competent jurisdiction or
before the Conciliation and Appeals Board or its successor. The
Assurance thus stipulated that affected tenants retained their
right to file overcharge complaints and have those complaints
adjudicated by DHCR.

DHCR apparently dismissed an unknown number of tenant overcharge
complaints, however, solely on the basis that DHCR believed the
Argo Assurance of Discontinuance meant that overcharge complaints
in all buildings managed by Argo did not have to be considered by
DHCR. One DHCR dismissal noted that the "parties (had) advised"
DHCR that the owner had entered into an Assurance of
Discontinuance with the Attorney General's office and, therefore,
DHCR was dismissing the tenant's complaint.

In fact, in this particular case, the building was not one of the
buildings listed in the Assurance of Discontinuance, but merely
another building which happened to be managed by Argo Realty. The
"parties" never advised the DHCR of the Assurance of
Discontinuance since the tenant had no knowledge of it prior to
receiving the decision dismissing his complaint. And finally,
even if the Assurance did apply, it was no basis for dismissal
since it specifically provided that the tenants reserved all
their rights to proceed in court or before DHCR. It is unknown
how many overcharge complaints filed against Argo Realty may have
been dismissed on such grounds. Rent examiner Elliot Vizansky
testified that he had been told by the Deputy Director of the
Backlog Unit, Gene Kelly, to forward all cases involving Argo
Realty to him for special processing. Deputy Director Kelly
testified that he would personally review and segregate such
cases and assign them to special examiners selected by him for
completion.

Other cases were also singled out for special treatment
apparently because Assurances of Discontinuance had been entered
into by the Attorney General. Rent examiner Elsie Carney
testified that she had been instructed to accept all rental
histories submitted by the Carol Management Company as truthful
without requiring that leases or other evidence be submitted to
substantiate Carol Management's claims of what the legal rent was
in apartments they managed. This was contrary to the procedures
generally used in other overcharge cases according to Ms. Carney,
where leases or other evidence were required to document all
claims about apartment rental histories. Ms. Carney testified
that the reason she understood her supervisor had told her to
give favorable treatment to Carol Management was that "[T]he
Attorney General had made some kind of arrangement" in such
cases.

From the testimony received at the hearing, it appears that
Deputy Backlog Unit Director Gene Kelly and other DHCR staff
improperly dismissed or directed favorable treatment in such
cases because they did not understand the legal effect of the
Assurances of Discontinuance they were relying upon. DHCR staff
apparently believed that the existence of an Assurance of
Discontinuance indicated that the overcharges against the covered
owners were settled or that rent reviews had been conducted and
refunds had taken place where appropriate. As indicated above,
this was not a correct assumption to be drawn from the existence
of such Assurances. In fact, the terms of the Argo Realty
Assurance described above specifically contradicted such a
conclusion and left tenants free to pursue their individual
claims.

The Argo Realty and Carol Management cases brought to light at
the hearing indicated that DHCR may have improperly dismissed or
given favorable treatment to a number of cases involving firms
which entered into Assurances of Discontinuance with the Attorney
General's office. Further investigation will be necessary to
determine the full scope of such improprieties.