Matter of 507 W 170 LLC v. New York State Div. of Hous. & Community Renewal

Matter of 507 W 170 LLC v New York State Div. of

Hous. & Community Renewal

2025 NY Slip Op 31899(U)

May 30, 2025

Supreme Court, New York County

Docket Number: Index No. 157279/2023

Judge: Kathleen C. Waterman-Marshall

Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001(U), are republished from various New York

State and local government sources, including the New

York State Unified Court System's eCourts Service.

This opinion is uncorrected and not selected for official

publication.

INDEX NO. 157279/2023

NYSCEF DOC. NO. 32 RECEIVED NYSCEF: 05/30/2025

SUPREME COURT OF THE STATE OF NEW YORK

NEW YORK COUNTY

PRESENT: HON. KATHLEEN WATERMAN-MARSHALL PART 31

Justice

---------------------------------------------------------------------------------X INDEX NO. 157279/2023

IN THE MATTER OF THE APPLICATION OF 507 W 170

LLC, MOTION DATE 07/20/2023

Plaintiff, MOTION SEQ. NO. 001

-v-

NEW YORK STATE DIVISION OF HOUSING AND DECISION + ORDER ON

COMMUNITY RENEWAL, EMMA PAULINO MOTION

Defendant.

---------------------------------------------------------------------------------X

The following e-filed documents, listed by NYSCEF document number (Motion 001) 2, 14, 15, 16, 17, 18,

19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30

were read on this motion to/for ARTICLE 78 (BODY OR OFFICER) .

Upon the foregoing documents, petitioner’s article 78 petition to reverse respondent’s

imposition of treble damages upon its finding that petitioner overcharged a tenant, or,

alternatively, to remand the matter for further proceedings, is granted in part and the matter

dismissed.

Background

Petitioner is the owner of a residential building at 507 West 170th Street in the County,

City, and State of New York, which, as relevant to this proceeding, comprises at least one rent-

stabilized apartment, to wit: Apartment 22. The tenant of Apartment 22 was enrolled in the NYC

Senior Citizen Increase Exemption (“SCRIE”) program; the SCRIE program results in rent

exemption orders issued by the NYC Department of Finance (“DOF”) which freeze a tenant’s

rent, prohibit future rent increases to the tenant, and awards the owner a tax abatement credit in

place of the future rent increases (RSL § 26-509[3][iii]).

On May 13, 2016, the tenant of Apartment 22 filed a rent overcharge complaint with

respondent New York State Division of Housing and Community Renewal (“DHCR”) alleging

that petitioner failed to recognize various rent reduction orders issued by DHCR under the

SCRIE program. Petitioner opposed the complaint, contending that the amount of rent paid was

less than the reduced legal rent and that it had inquired with the DOF whether an adjustment had

been made prior to petitioner’s purchase of the building. By order dated February 26, 2019, the

Rent Administrator at DHCR found that petitioner had failed to comply with four prior rent

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reduction orders, had overcharged the tenant in Apartment 22, and the total amount of the

overcharge, including interest and treble damages, was $22,428.80.1

Petitioner filed an administrative appeal (PAR), contending treble damages were not

warranted because: (1) the overcharge was not willful; (2) the Housing Stability and Tenant

Protection Act of 2019 (“HSTPA”) did not apply; (3) the calculation of the tenant’s rent was

hyper technical; (4) petitioner was unaware of the rent reduction orders issued prior to its

ownership; (5) the tenant’s rent was complicated by both the tenant and DSS paying portions of

the rent; and (6) the overcharge award was not apportioned between the tenant and the DOF. The

Commissioner denied petitioner’s PAR by order issued May 31, 2023. The Commissioner found

that the Rent Administrator did not apply the HSTPA in awarding treble damages, and instead

applied the appropriation portion of the Rent Stabilization Code to calculate damages.

Petitioner filed the instant Article 78 proceeding on July 20, 2023, contending that the

Deputy Commissioner’s PAR order was arbitrary and capricious by awarding the tenant treble

damages after petitioner established the overcharge was not willful. Additionally, petitioner

contends that the Deputy Commissioner’s PAR order was arbitrary and capricious by not

properly apportioning the rent reduction order between the tenant and the City of New York. As

part of both claims, petitioner alleges the PAR order was counter to considerations of equity and

fair dealing. Petitioner’s challenge of the PAR order is limited to these claims. Respondent

answered and opposed the petition, petitioner replied, and the matter was, thereafter, adjourned

and transferred to this Part.

Discussion

The standard of review of an agency determination via an Article 78 proceeding is well

established. The Court must determine whether there is a rational basis for the agency

determination or whether the determination is arbitrary and capricious (Matter of Gilman v New

York State Div. of Housing and Community Renewal, 99 NY2d 144 [2002]). “An action is

arbitrary and capricious when it is taken without sound basis in reason or regard to the facts”

(Peckham v. Calogero, 12 NY3d 424 [2009]; see also Matter of Pell v Board of Educ. of Union

Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d

222 [1974]). When an agency determination is supported by a rational basis, this Court must

sustain the determination, notwithstanding that the Court would reach a different result than that

of the agency (Peckham, 12 NY2d at 431).

I. Treble Damages

The Commissioner’s PAR order is supported by a rational basis. As an initial matter, the

PAR order found that petitioner failed to establish the overcharge was not willful; thus, treble

damages were imposed by statute. This is not a scenario in which the PAR order found no

willfulness but nevertheless imposed treble damages. The PAR order correctly applied Rent

Stabilization Code § 2526.1 – which provides that a current owner is responsible for overcharges

collected by a prior owner and for knowledge of rent records and history – to find that petitioner

1

The Rent Administrator initially calculated the total damages to be $19,276.31; however, the proceedings were sua

sponte reopened by the Rent Administrator for a re-calculation of damages, and upon further consideration the Rent

Administrator calculated the total overcharge to be $22,428.80.

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was responsible for the prior owner’s overcharges. As noted by the Commissioner, the subject

lease was registered with DHCR; thus, the collectible rent was known, and the amount the tenant

was charged exceeded the collectible rent. The prior owner knew this information, and petitioner

could have requested copies of the rent reduction orders and registrations when it purchased the

building (Le Bihan v 27 Washington Sq. North Owner, LLC, 205 AD3d 616 [1st Dept 2022]

[successor landlord able to ascertain whether previous owner overcharged tenants due to record

keeping requirements]; see generally, Matter of Regina Metro. Co., LLC v New York State Div.

of Hous. & Community Renewal, 35 NY3d 332 n 6 [2020] [DHCR taking notice of its own

orders is not an onerous obligation on owner]). Furthermore, the PAR order found petitioner was

actually aware of at least one SCRIE rent reduction order,2 as it cited this reduction order in its

December 2015 letter to DOF. Nevertheless, petitioner did not reduce the rent as required by this

reduction order.

Willfulness of an overcharge is presumed, and treble damages are imposed, unless the

owner establishes, by a preponderance of the evidence, that the overcharge was not willful (H.O.

Realty Corp v State Div. of Housing and Community Renewal, 46 AD3d 103, 107 [1st Dept

2007]; Rent Stabilization Law § 26-516[a]). Contrary to petitioner’s claim that its letters to DOF

inquiring about the rent adjustment establish that its overcharge was not willful, its first letter,

sent to the DOF in December 2015, establishes that the continued overcharges after petitioner

purchased the building were willful. The December 2015 letter expressly referenced a rent

reduction order, and inquired regarding tax abatement credits stemming from the rent reduction.

Notwithstanding, it is undisputed that petitioner did not apply this rent reduction to the tenant’s

rent. Accordingly, the PAR order finding willfulness of the overcharge is neither arbitrary nor

capricious.

Petitioner asserts that its overcharge was a result of hyper technical calculation of rent

and that respondent failed to consider the hyper technical nature of the overcharge; however, it

cites no authority for this conclusion.

II. Equity and Fair Dealing

Article 78 review is limited to whether the agency determination is arbitrary and

capricious, taken with regard to the facts, and accurately applies the law (Matter of Gilman, 99

NY2d 144; CPLR § 7803). Petitioner cites no authority permitting this Court to substitute its

judgment, as a matter of equity and fair dealing, in reviewing an agency determination under

Article 78. Indeed, such substitution is not permitted (Peckham, 12 NY2d at 431). Consequently,

petitioner’s request that the Court reverse respondent’s determination upon equitable or fail

dealing grounds is denied.

III. Interest

To the extent that petitioner alleges that is should not be responsible for interest for the

period between the first and second rent administrator orders (February 26, 2019 to September

21, 2022), its claim is unpreserved having not been presented during the PAR. Assuming it was

preserved, the imposition of interest is nevertheless proper. There is no dispute that petitioner

overcharged the tenant, and the imposition of interest is “designed to discourage violations of the

2

Reduction Order WD410086S.

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Rent Stabilization Law and, where a violation occurs, to compensate the tenant” (Mohassel v

Fenwick, 5 NY3d 44, 50 [2005]).

IV. Apportionment of Overcharge

Petitioner contends that respondent failed to follow its own precedent by not apportioning

the overcharge between the tenant and the DOF. Whether respondent failed to follow its own

precedent on this issue is not dispositive, as the Appellate Division, First Department has already

determined that a tenant is not entitled to recover rent overcharges which were paid by a form of

public assistance (Dunbar Partners v Landon, 277 AD2d 129 [1st Dept 2000]). It is undisputed

that a portion of the tenant’s rent was not directly paid by the tenant, but instead was paid by

social or public assistance programs. However, neither the PAR order, nor the orders of the rent

administrator, apportion the overcharge between the tenant and any public or social assistance

programs.3

To the extent that respondent contends the rent administrator calculated total overcharge

damages to be $52,763.60, and tenant’s portion of damages to be $22,428.80, the record and

determinations of respondent are unclear on this point.

Conclusion

It is undisputed that petitioner overcharged the tenant. Respondent’s determination that

petitioner willfully overcharged the tenant, and thus finding treble damages appropriate, is

supported by a rational basis and statute, and is neither arbitrary nor capricious. Consequently,

disturbing these findings would be inappropriate. However, on this record, it is not clear which

portion of the overcharged rent was paid directly by the tenant and which portion was paid for by

social or public assistance. The tenant is entitled to recover only the portion of the overcharge

they paid; that portion of the overcharge paid by public or social assistance programs is

recoverable by the entity making those assistance payments.

Accordingly, it is

ORDERED that the petition is granted to the extent of remanded for further proceedings

before respondent DHCR limited to the solely to apportioning the overcharge damages paid by

the tenant directly and those paid by other sources, and otherwise denied; and it is further

ORDERED that the matter shall be marked disposed.

5/30/2025

[~~~6ffl~

DATE KATHLEEN C. WATERMAN-MARSHALL,

J.S.C.

□ ~ ~

CHECK ONE: X CASE DISPOSED NON-FINAL DISPOSITION

GRANTED DENIED X GRANTED IN PART OTHER

APPLICATION: SETTLE ORDER SUBMIT ORDER

CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT REFERENCE

3

Petitioner contends that the Department of Social Services and the CRIE unit of the NYC Department of Finance

paid portions of the tenant’s rent.

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