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Ansonia Residents Assoc. v. NYS Div. Hous. Comm. Ren.

Postby TenantNet » Fri Jun 30, 2006 8:02 am

In the Matter of Ansonia Residents Association et al., Appellants-Respondents, v. New York State Division of Housing and Community Renewal, Respondent. Ansonia Associates, Intervenor-Respondent. Thomas Soja, Individually and as President of the Ansonia Tenants Coalition, Inc., Intervenors-Respondents-Appellants

[NO NUMBER IN ORIGINAL]

Court of Appeals of New York

75 N.Y.2d 206; 551 N.E.2d 72; 551 N.Y.S.2d 871; 1989 N.Y. LEXIS 3223

October 19, 1989, Argued November 21, 1989, Decided

PRIOR HISTORY:
Cross Appeals, by permission of the Court of Appeals, from an order of the Appellate Division of the Supreme Court in the First Judicial Department, entered November 17, 1988, which affirmed a judgment of the Supreme Court (Carmen B. Ciparick, J.), entered in New York County in a proceeding pursuant to CPLR article 78, denying the application and dismissing the petition to review a determination of the respondent Division of Housing and Community Renewal which granted intervenor-respondent Ansonia Associates a permanent rent increase for completing a major capital improvement to its rent-stabilized building.
Matter of Ansonia Residents Assn. v New York State Div. of Hous. & Community Renewal, 144 AD2d 1040, affirmed.

DISPOSITION: Order affirmed, with costs.

HEADNOTES:
Landlord and Tenant -- Rent Regulation -- Permanent Rent Increase for Major Capital Improvement

1. Rent Stabilization Law § 26-511 (c) (Administrative Code of City of New York) authorizes the Division of Housing and Community Renewal (DHCR) to award a permanent rent increase to an owner who completes a major capital improvement of a rent-stabilized building. The requirement of section 26-511 (c) that the costs of major capital improvements be "amortized" refers only to the method of calculating the amount of the corresponding rent increase -- an amount which section 26-511 (c) also provides may not exceed 6% annually and which is to be added to the permanent stabilized rent. Once the amount of the increase is calculated, the statute does not limit the time during which the increase can be imposed. Accordingly, in a CPLR article 78 proceeding challenging a determination of DHCR granting respondent owner a permanent rent increase for a major capital improvement of the subject rent-stabilized building based upon the owner's installation of storm windows, the agency did not err in construing the statutory requirement that the costs of such improvements be "amortized" as describing the method by which the corresponding rent increase is to be calculated rather than mandating that any such increase be terminated when the owner recoups the cost of a major capital improvement (see, Administrative Code § 26-511 [c] [6] [b]).

Landlord and Tenant -- Rent Regulation -- What Constitutes Major Capital Improvement -- Installation of Storm Windows

2. A determination of the Division of Housing and Community Renewal (DHCR) that an alteration constitutes a major capital improvement within the meaning of Rent Stabilization Law § 26-511 (c) (6) (b) necessarily entails the agency's expertise in evaluating factual data and is entitled to deference if not irrational or unreasonable. Thus, in a CPLR article 78 proceeding challenging a determination of DHCR granting respondent owner a permanent rent increase for a major capital improvement of the subject rent-stabilized building, the tenants' contention that DHCR erred in concluding that the installation of storm windows at the subject building is a major capital improvement, is rejected. The agency has rationally interpreted the requirement of section 26-511 (c) (6) (b) that such improvements be "building-wide" to be satisfied by the installation of storm windows in virtually all the building's living areas notwithstanding that none were installed in hallways or other common areas (see also, Rent Stabilization Code [9 NYCRR] § 2522.4 [a] [2] [i]).

Landlord and Tenant -- Rent Regulation -- What Constitutes Major Capital Improvement -- Installation of Storm Windows -- Conformity with Agency Precedent

3. The Division of Housing and Community Renewal (DHCR) did not act arbitrarily or capriciously in determining that respondent owner's installation of storm windows in a rent-stabilized building qualified as a major capital improvement contrary to the agency's Operational Bulletin 84-4, which provides that the installation of storm windows is not a major capital improvement if unaccompanied by the installation of prime windows. Operational Bulletin 84-4 became effective after the determination of the District Rent Administrator in this case that such installation constituted a major capital improvement and DHCR has allowed the owner the benefit of the agency's published exception to that bulletin for parties who had expended sums installing storm windows before its effective date. In so treating the owner's rent increase application, DHCR has acted consistently with its treatment of the rent increase applications of other owners who installed storm windows before the effective date of Operational Bulletin 84-4.

COUNSEL: David Ng, William A. Herbert and Susan A. Saslow for appellants-respondents. I. It was arbitrary and capricious for DHCR to grant a major capital improvement (MCI) increase for installation of storm windows when DHCR Operational Bulletin 84-4 allows a MCI increase for such installations only if they are done in conjunction with installation of prime windows. II. It was error for DHCR to grant a MCI increase when the installation was not "building-wide", as required by statute and regulation. ( Eaton v New York City Conciliation & Appeals Bd., 56 NY2d 340; Matter of Manhattan Pizza Hut v New York State Human Rights Appeals Bd., 51 NY2d 506; Pearce, Mayer & Greer v Joy, 63 AD2d 928, 48 NY2d 680.) III. It was error for DHCR to grant a MCI increase for work done to correct violations. ( Matter of Rosen v Weaver, 7 Misc 2d 576.) IV. It was error for DHCR to allow a MCI surcharge to become a permanent part of the rent. ( Eaton v New York City Conciliation & Appeals Bd., 56 NY2d 340; Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451; Matter of Manhattan Pizza Hut v New York State Human Rights Appeals Bd., 51 NY2d 506; Coalition Against Rent Increase Passalongs v Rent Guidelines Bd., 104 Misc 2d 101; 8200 Realty Corp. v Lindsay, 27 NY2d 124; Sullivan v Brevard Assocs., 66 NY2d 489; Two Assocs. v Brown, 127 AD2d 173; Matter of Walter & Samuels v New York City Conciliation & Appeals Bd., 63 AD2d 626.)

Donald Eng and David Rozenholc for intervenors-respondents-appellants. I. DHCR failed to comply with Justice Glen's February 27, 1986 order. II. There can be no major capital improvement rent increase because the replacement of storm windows was not building-wide. III. DHCR erred in making the MCI rent increase permanent. ( Eaton v New York City Conciliation & Appeals Bd., 56 NY2d 340; Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451; Matter of Manhattan Pizza Hut v New York State Human Rights Appeals Bd., 51 NY2d 506.)

Mary Ellen Cronly and Dennis B. Hasher for respondent. I. The Division's application of the Rent Stabilization Law to authorize permanent base rent increases for major capital improvements is in full accord with law and supported by a rational basis. (8200 Realty Corp. v Lindsay, 27 NY2d 124, 400 U.S. 962; French Investing Co. v City of New York, 39 NY2d 587, 429 U.S. 990; Matter of Ansonia Residents' Assn. v New York State Div. of Hous. & Community Renewal, 141 Misc 2d 224; Matter of Mounting & Finishing Co. v McGoldrick, 294 NY 104; White v Winchester Club, 315 U.S. 32; United States v Hammers, 221 U.S. 220; Bowles v Seminole Rock Co., 325 U.S. 410; Matter of Plaza Mgt. Co. v City Rent Agency, 48 AD2d 129, 37 NY2d 837; Minton v Domb, 63 AD2d 36; Matter of Cale Dev. Co. v Conciliation & Appeals Bd., 94 AD2d 229, 61 NY2d 976.) II. A rational basis supports the determination that the installation of new storm windows in apartments is a building-wide major capital improvement. ( Matter of Fanelli v New York City Conciliation & Appeals Bd., 90 AD2d 756, 58 NY2d 952; Matter of Oriental Blvd. Co. v New York City Conciliation & Appeals Bd., 92 AD2d 470, 60 NY2d 633; Matter of Levine v New York State Liq. Auth., 23 NY2d 863.) III. The record amply supports the Division's determination that the installation of storm windows was a MCI and not merely deferred maintenance where storm windows were a new feature in the building, and where the owner made substantial efforts to remove all violations pertaining to the windows. IV. The Commissioner acted rationally in applying its exception to Operational Bulletin 84-4 when he granted increases for MCI's installed in reliance on the prior board policy which authorized MCI increases for storm windows. ( Longines-Wittnauer Watch Co. v Barnes & Reinecke, 15 NY2d 443, cert denied sub nom. Estwing Mfg. Co. v Singer, 382 U.S. 905; Matter of St. Vincent's Hosp. & Med. Center v New York State Div. of Hous. & Community Renewal, 109 AD2d 711, 66 NY2d 959; Matter of Ess Pee Bee Realty Corp. v Gabel, 52 Misc 2d 1033, 28 AD2d 822; Securities Commn. v Chenery Corp., 322 U.S. 194.)

Dean G. Yuzek, Arthur C. Fahlbusch, Jr., Richard L. Gabriel and Jeffrey R. Metz for intervenor-respondent. I. The determination of the DHCR and the courts below that MCI rent increases are permanently added to the rent base is in complete accord with the intent of the Legislature and settled precedent. ( Matter of Howard v Wyman, 28 NY2d 434; Matter of Meko Holding v Joy, 107 AD2d 278; Matter of Litman v Weaver, 20 Misc 2d 1032, 10 AD2d 865; Matter of Gilmore v Preferred Acc. Ins. Co., 283 NY 92; Matter of Abraham & Straus v Tully, 47 NY2d 207; Feder v Caliguira, 8 NY2d 400; Matter of Charles v Regan, 126 Misc 2d 333.) II. The court below and the trial court correctly affirmed the DHCR's determinations that the installation of storm windows was building-wide and that a MCI rent increase was warranted. ( Matter of Oriental Blvd. Co. v New York City Conciliation & Appeals Bd., 92 AD2d 470, 60 NY2d 633; Matter of Korein v Conciliation & Appeals Bd., 84 AD2d 724, 57 NY2d 938; Fresh Meadows Assocs. v New York City Conciliation & Appeals Bd., 88 Misc 2d 1003, 55 AD2d 559, 42 NY2d 925; Matter of Bambeck v State Div. of Hous. & Community Renewal, 129 AD2d 51, 70 NY2d 615; Matter of Carol Mgt. Corp. v Commissioner of State of N. Y. Div. of Hous. & Community Renewal, 140 Misc 2d 673.) III. The court below and the trial court correctly affirmed the DHCR's finding that the installation of storm windows where none existed before was a major capital improvement, and not deferred maintenance or ordinary repairs. ( Matter of Rosen v Weaver, 7 Misc 2d 576.) IV. The court below and the trial court correctly affirmed the DHCR's determination that Operational Bulletin 84-4 is inapplicable where, as here, applying that order would have been grossly inequitable.

Joseph L. Forstadt, Anthony I. Pye and Martin J. Heistein for Rent Stabilization Association of New York City, Inc., amicus curiae. I. The policy of granting permanent rent increases for major capital improvements is supported by the doctrine of stare decisis. ( Cenven, Inc. v Bethlehem Steel Corp., 41 NY2d 842; Baker v Lorillard, 4 NY 257; Donawitz v Danek, 42 NY2d 138; Matter of Higby v Mahoney, 48 NY2d 15; Matter of Eckart, 39 NY2d 493; Matter of Litman v Weaver, 20 Misc 2d 1032, 10 AD2d 865; Town of Amherst v County of Erie, 236 App Div 58, 260 NY 361; Matter of Johnson v Joy, 48 NY2d 689; Matter of Harder's Express v New York State Tax Commn., 70 AD2d 1010, 50 NY2d 1050; Matter of Charles v Regan, 126 Misc 2d 333.) II. The Legislature has expressly approved the Rent Stabilization Code providing permanent increases for MCIs. ( Matter of Richardson v Starr, 85 Misc 2d 476; People v Gray, 41 AD2d 125, 34 NY2d 903, 419 U.S. 1055.) III. Permanent rent increases for MCIs further the public policy embodied in the Rent Stabilization L

JUDGES: Judges Alexander, Simons, Kaye, Titone, Hancock, Jr., and Bellacosa concur; Chief Judge Wachtler taking no part.
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Postby TenantNet » Fri Jun 30, 2006 8:02 am

OPINIONBY: ALEXANDER

OPINION: [*210] [***872] [**73] OPINION OF THE COURT [1-3] The primary issue presented on this appeal is whether the Rent Stabilization Law authorizes the Division of Housing and Community Renewal to award a permanent rent increase to an owner who completes a major capital improvement of a [*211] rent stabilized building. We conclude that it does. Thus we reject appellants' contention that the agency erred in construing the statutory requirement that the costs of such improvements be "amortized" as describing the method by which the corresponding rent increase is to be calculated rather than mandating that any such increase be terminated when the owner recoups the cost of a major capital improvement (see, Administrative Code of City of New York § 26-511 [c] [6] [b]). We also reject appellants' contention that the agency has acted irrationally or arbitrarily and capriciously in concluding that the installation of storm windows in this case constituted a major capital improvement for which a permanent rent increase could be granted.

I

Respondent Ansonia Associates (Ansonia) owns a rent-stabilized building located at 2109 Broadway in New York City. In July 1981, Ansonia applied to the Conciliation and Appeals Board (the predecessor agency to respondent Division of Housing and Community Renewal [DHCR]) for a rent increase following the completion of a major capital improvement. Specifically, Ansonia's application requested a 3.12% rent increase, based on its costs of $ 339,471 in installing storm windows in the subject building. The Ansonia Residents' Association and the Ansonia Tenants' Association, both representing the tenants of the building, opposed the application. On August 9, 1984, the District Rent Administrator determined that the installation of storm windows constituted a major capital improvement. In calculating the corresponding rent increase, the administrator disallowed some of Ansonia's expenses and awarded Ansonia a rent increase of 2.15%. Both tenants' organizations and Ansonia filed petitions for administrative review and on May 23, 1985, the Commissioner denied the petitions and affirmed the determination of the District Rent Administrator.

All three parties then instituted article 78 proceedings which were consolidated by Supreme Court. That court granted DHCR's cross motion to remit the proceedings to the agency for further consideration. In remitting, the court directed DHCR to consider, inter alia, whether the installation of storm windows qualified as a major capital improvement or was actually deferred maintenance, whether the installation was "building-wide", whether and to what extent the rents of [*212] the building's commercial tenants should have been included in the calculation of the rent increase, whether an increase should have been withheld until claimed inadequacies in the installation and alleged continuing leaks were remedied, whether any rent increase based upon the major capital improvement could be permanent, and whether the grant of a 2.15% increase for this improvement when added to the other increases recently received by the owner totaled more than the 6% annual increase allowed by statute.

The Commissioner reviewed the entire record and upon reconsideration, denied the owner's petition, granted the tenants' petitions to the extent of denying the requested rent increase with respect to eight apartments where, according to the record, Ansonia had found it impossible to install new windows due to the physical characteristics of the windows involved, and otherwise affirmed the determination of the District Rent Administrator. The Commissioner found that the storm window installation was building-wide, constituted a major capital improvement and that a permanent rent [***873] [**74] increase could be awarded for such an improvement.

The tenants' organizations n1 and Ansonia again instituted article 78 proceedings challenging DHCR's determination. Ansonia contended that certain fees and expenses were improperly excluded from the rent increase calculation while the tenants alleged that DHCR erred in determining that the installation of storm windows constituted a major capital improvement and in granting a permanent rent increase for such an improvement. Supreme Court dismissed the proceedings. On the parties' cross appeals, the Appellate Division affirmed, without opinion, and subsequently denied reargument and leave to appeal to this court. We granted leave to the tenants' organizations n2 and now affirm the order of the Appellate Division.

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n1 A third tenants' organization, the Ansonia Tenants' Coalition, and its president were permitted to intervene.


n2 Ansonia's cross motion for leave to appeal was denied ( Matter of Ansonia Assocs. v State Div. of Hous. & Community Renewal, 74 NY2d 604).


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II

On this appeal, the tenants argue that DHCR erred and was arbitrary and capricious in determining that the installation of storm windows in living areas but not in hallways or other common areas was a "building-wide" major capital improvement [*213] and that the failure to install new prime windows did not preclude a major capital improvement rent increase. The tenants further argue that DHCR erroneously construed section 26-511 (c) (6) (b) of the Rent Stabilization Law to authorize the agency to award a permanent rent increase on the basis of a major capital improvement.

We note at the outset that our review of DHCR's interpretation of the statutes it administers is limited. "Where the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices or entails an evaluation of factual data and inferences to be drawn therefrom, the courts regularly defer to the governmental agency charged with the responsibility for administration of the statute. If its interpretation is not irrational or unreasonable, it will be upheld." ( Kurcsics v Merchants Mut. Ins Co, 49 NY2d 451, 459; see also, Matter of Salvati v Eimicke , 72 NY2d 784, 791; Matter of Colt Indus. v New York City Dept. of Fin., 66 NY2d 466.)

[2] DHCR's determination that an alteration constitutes a major capital improvement within the meaning of section 26-511 (c) (6) (b) necessarily entails the agency's expertise in evaluating factual data and is entitled to deference if not irrational or unreasonable. Mindful of our limited standard of review, we reject the tenants' threshold argument that DHCR erred in concluding that the installation of storm windows at the subject building is a major capital improvement. The agency has rationally interpreted the requirement of section 26-511 (c) (6) (b) that such improvements be "building-wide" to be satisfied by the installation of storm windows in virtually all the building's living areas notwithstanding that none were installed in hallways or other common areas (see also, New York City Rent Stabilization Code [9 NYCRR] § 2522.4 [a] [2] [i]). n3

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n3 Moreover, to the extent that the tenants suggest that there is not substantial evidence in the record to support DHCR's findings as to the number of windows installed and that the installation did not constitute deferred maintenance, the argument is without merit. In light of these findings, the tenants' additional argument that DHCR erred in granting a rent increase for deferred maintenance is also without merit.


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[3] Nor has DHCR acted arbitrarily or capriciously in determining that this installation of storm windows qualified as a major capital improvement contrary to the agency's Operational Bulletin 84-4, which provides that the installation of storm windows is not a major capital improvement if [*214] unaccompanied by the installation of prime windows. Operational Bulletin 84-4 became effective after the determination of [***874] [**75] the District Rent Administrator in this case and DHCR has allowed Ansonia the benefit of the agency's published exception to that bulletin for parties who had expended sums installing storm windows before its effective date (see, DHCR Update No. 85-3). In so treating Ansonia's rent increase application, DHCR has acted consistently with its treatment of the rent-increase applications of other owners who installed storm windows before the effective date of Operational Bulletin 84-4 (cf., Matter of Field Delivery Serv. [Roberts], 66 NY2d 516). Accordingly, there is no basis upon which to disturb the agency's determination that Ansonia's installation of new storm windows constituted a major capital improvement.

[1] The dispositive issue on this appeal, then, is whether DHCR properly construed section 26-511 (c) to allow the agency to grant a permanent rent increase on the basis of this major capital improvement. Unlike the question of whether the installation of storm windows qualified as a major capital improvement, this determination is one of pure statutory construction, turning upon the local legislature's intended meaning of the word "amortized" in section 26-511 (c) and does not entail administrative expertise or the evaluation of factual data. Since this "question is one of pure statutory reading and analysis, dependent only upon accurate apprehension of legislative intent", we need not and do not defer to the agency in construing the statute (see, Kurcsics v Merchants Mut. Ins. Co., 49 NY2d, at 459, supra). Nevertheless, our review of the statute and its legislative history leads us to conclude that DHCR has correctly construed the statute to authorize an award of a permanent rent increase based upon the completion of a major capital improvement.

Section 26-511 (c) of the Rent Stabilization Law authorizes DHCR to adopt a code in accordance with that statute, providing that

"A code shall not be adopted hereunder unless it appears to the [DHCR] that such code

* * *

"(6) provides criteria whereby the commissioner may act upon applications by owners for increases in excess of the level of fair rent increase established under this law provided, however, that such criteria shall provide * * * (b) as to [*215] completed building-wide major capital improvements, for a finding that such improvements are deemed depreciable under the Internal Revenue Code and that the cost is to be amortized over a five-year period, based upon cash purchase price exclusive of interest or service charges. Notwithstanding anything to the contrary contained herein, no increase granted pursuant to this paragraph shall, when added to the annual gross rents, as determined by the commissioner, exceed the sum of * * * (iii) actual annual mortgage debt service (interest and amortization) * * * The collection of any increase in the stabilized rent for any apartment pursuant to this paragraph shall not exceed six percent in any year * * * with collectability of any dollar excess above said sum to be spread forward in similar increments and added to the stabilized rent as established or set in future years" (emphasis added).

In accordance with this provision, the Rent Stabilization Code provides that any increase based upon a major capital improvement "shall be 1/60th of the total cost, including installation but excluding finance charges" (Rent Stabilization Code [9 NYCRR] § 2522.4 [a][4]).

The tenants argue that the word "amortized" is used in the statute in its dictionary sense, meaning the payment of a debt in installments until the debt is extinguished. Thus they contend that the plain language of the statute requires that the cost of a major capital improvement be amortized over a five-year period in the form of a temporary rent increase which terminates at the end of the five years when the owner has recouped the cost of the improvement.

DHCR and its predecessor agencies, however, have consistently construed section 26-511 (c) to authorize permanent rent increases for the completion of major capital improvements and the local legislature, in never choosing to amend the statute to provide otherwise, has acquiesced in this construction. In the agency's view, the [***875] [**76] requirement of section 26-511 (c) that the costs of major capital improvements be "amortized" refers only to the method of calculating the amount of the corresponding rent increase -- an amount which section 26-511 (c) also provides may not exceed 6% annually and which is to be added to the permanent "stabilized rent". Once the amount of the increase is calculated, the statute does not limit the time during which the increase can be imposed. Contrary to the tenants' contention, this construction is not inconsistent with the section's subsequent specific reference to "interest [*216] and amortization" relating to an owner's mortgage. Unlike payments on a mortgage, a rent increase on the basis of a major capital improvement does not represent payment of a finite debt which the tenant owes to the owner, but rather is payment for a service which the tenant continues to receive after the owner has recouped the initial cost of the improvement.

This view is supported by the legislative history and purposes of the Rent Stabilization Law which was enacted in 1969 in response to a housing crisis which had developed in part because the Rent Control Law (Administrative Code § 26-401 et seq. [formerly § Y51-1.0 et seq.]) did not apply to some 400,000 apartments constructed after 1947. As we have recognized, the dual purposes of the Rent Stabilization Law were to protect tenants from eviction as a result of rapidly spiraling rent increases and to encourage future housing construction by allowing landlords reasonable rent increases so that they could profit from the operation of their properties (8200 Realty Corp. v Lindsay, 27 NY2d 124, 136-137). Thus an interpretation of section 26-511 (c) to allow permanent rather than only temporary rent increases for major capital improvements serves the purposes of the Rent Stabilization Law by providing owners with an incentive to make improvements which benefit owners and tenants alike. Under the contrary construction of the statute urged by the tenants, owners would have little incentive to invest in major capital improvements if they could only recover the cost of their investment, and in fact might incur additional expenses in maintaining such an improvement after its initial cost had been recovered.

Moreover, the agencies charged with administering the Rent Control Law have always construed that statute to permit permanent rent increases on the basis of completed major capital improvements (cf., Matter of Litman v Weaver, 20 Misc 2d 1032, affd 10 AD2d 865 [permanent rent increase allowed for "amortized" hardship expense]). The legislative history indicates that in adopting the less onerous regulatory scheme of the Rent Stabilization Law, the City Council was aware of and chose to continue this practice for rent-stabilized apartments (Report to Mayor on Investigation into Rental Increases in the Non-Controlled Housing Market, Legis Bill Jacket, Local Laws, 1969, No. 16 of City of New York [explicitly noting that increases for major capital improvements under rent control are permanent and that "amortization" refers to the technical method of calculating rent increases]). There is [*217] no indication that the City Council intended the generally less onerous regulatory scheme of the Rent Stabilization Law to be more burdensome than the Rent Control Law in this respect. Thus we conclude that section 26-511 (c) of the Rent Stabilization Law authorizes DHCR to grant permanent rent increases on the basis of completed major capital improvements.

We have considered appellants' remaining contention and conclude that it is without merit.

Accordingly, the order of the Appellate Division should be affirmed, with costs.
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