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985 Fifth Avenue LLC v Reiss
2003 NY Slip Op 30114(U)
January 15, 2003
Supreme Court, New York County
Docket Number: 0112371/2002
Judge: Diane A. Lebedeff
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[* 1 ]
SUPREME COURT OF THE STATE OF NEW YORK -                                                        NEW YORK COUNTY
Hon. DIANE A. LEBEDEFF                     PART                                                 8
PRESENT:
                                           Justice
INDEX NO.
MOTION DATE
- v -
MOTION SEQ. NO.
MOTION CAL. NO.
I
The following papers, numbered 1 to        were read on this motion tolfor                      I
PAPERS NUMBERED
Notice of                                                                                       se - Affidavits - Exhibits ...
                                                                                                                                 -
Answering Affidavits - Exhibits
Replying Affidavits
Cross-Motion:                              Yes                                                  No
                                           Upon the foregoing papers, it is ordered that this
MOTION                                     IN ACCORDANCE
ACCOMPANYING                               DECISION.
                                                                                                J. S. C.
Check one:                                 FINAL DISPOSITION                                    NON-FINAL DISPOSITION




[* 2 ]
SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY:                                                                                 I.A.S. PART 8
985 FIFTH AVENUE LLC.,
Plaintiff,
-against-                                                                                        Index No.
Mot. Seq. No. 001
EARL REISS and NEW YORK STATE DIVISION
OF HOUSING                                                                                       COMMUNITY RENEWAL,
Defendants.
DIANE A. LEBEDEFF, J.:
This declaratory judgment action centers upon the state rent regulatory agency’s
procedures regarding income certification in luxury decontrol proceedings.’ Because the
plaintiff has filed an administrative appeal, both the defendant-tenant and the Division of
Housing and Community Renewal (“DHCR’) move to dismiss (CPLR 321 1) upon the
ground that plaintiff cannot bring a proceeding to challenge an administrative determination
which is not final or which “can be adequately reviewed by appeal to ... [a non-judicial] body
or officer” (CPLR 7801[
The plaintiff-landlord challenges procedures utilized by the DHCR in relation to an
owner seeking luxury decontrol of a rent stabilized apartment.  After the verification
information is received, “the owner and the tenants shall have thirty days within which to
and, thereafter, DHCR “shall, where appropriate, issue an order providing’’ for
luxury decontrol (RSL                                                                            26-504.3
In this case, the tenant, upon being notified of the information received from the
Department of Taxation and Finance, advised DHCR that he had filed an amended 2000
tax return. DHCR again sought verification from the Department of Taxation and Finance,
which verified that the tenant’s household income was below the threshold as a result of
the amended tax return or returns.




[* 3 ]
Both motions assert plaintiffs Petition for Administrative Review ("PAR") raise the
very same issues as are presented to the court in the amended complaint and urge that resort
to the court is barred by the doctrine requiring exhaustion of administrative remedies (see,
Urban Associates v. Hettinger, 177                                                                                                                                                     439 [    Dept. 199   applying exhaustion
                                                                                               principles to a declaratory judgment action). The doctrine was explained in Watergate
Apts. v. Buffalo Sewer Auth., 46                                                               52, 57                                                                                  as follows:
                                                                                               "It is hornbook law that one who objects to the act of an
                                                                                               administrative agency must exhaust available administrative remedies before
                                                                                               being permitted to litigate in a court of law                                           Young Men's Christian
Assn. v. Rochester Pure Waters Dist., 37                                                                                                                                               371, 375). This doctrine
                                                                                               furthers the salutory goals of relieving the courts of the burden of deciding
                                                                                               questions entrusted to an  agency (see 1 N.Y. Jur., Administrative Law,                 5,
pp.                                                                                            preventing premature judicial interference with the
administrators' efforts to develop, even by some trial and error, a
co-ordinated, consistent and legally enforceable scheme of regulation and
affording the agency the opportunity, in advance of possible judicial review,
to prepare a record reflective of its 'expertise and judgment' (Matter
36                                                                                             146, 150; see, also, 24 Carmody-Wait                                                    N.Y. Prac.,
There do exist exceptions to the exhaustion doctrine, which were summarized in Grattan v.
Department of Social Services of State of New York, 131                                        191, 193 (3rd Dept.
in the following terms:
"The Court of Appeals has held that exhaustion is not required where
the agency's action is challenged as being either unconstitutional or wholly
beyond its authority as a matter of law (Watergate   Apts. v. Buffalo Sewer
Auth., 46                                                                                      52, 57; see, Young Men's Christian Assn. v. Rochester Pure
Waters Dist., 37                                                                               371, 375-376). Exceptions also exist where resort to
an administrative remedy is futile or where its pursuit would cause irreparable
injury (Watergate                                                                              v. Buffalo Sewer Auth., supra, 46                                                       at
The court finds that none of these exceptions are applicable at this point in time.




[* 4 ]
Futility of Administrative Review
As to the claim an administrative review would be futile (Watergate 11 Apts. v.
Buffalo Sewer Auth., supra, 46                                                                                                                               at                                                                                     plaintiff has the burden of advancing evidence
                                                                                                                                                             on the issue of futility (see, Lehigh Portland Cement Co. v. New York State Dept. of
Environmental                                                                                  87                                                            136, 141 [                                                                             plaintiff demonstrated
                                                                                               unwavering policy was in effect for many years; compare, no                                                                                                                                           shown, New York
                                                                                               for   the Educ. of the Blind v. United Fedn. of Teachers‘                                                                                            83                                               390 [lst Dept.
affd 57                                                                                        982                                                           agency had not issued determination nor statement of
I
                                                                                               policy on the issue in dispute; Matter of Kirk v. Bahou, 73                                                                                          770                                              Dept.
affd 5 1                                                                                       867 [                                                         only evidence was statement by a petitioner “I believe” the
Commission has already decided this matter; Matter of Grattan v. Department of Social
131                                                                                            191                                                           Dept.                                                                                  lv. denied 70                                    616               finding no
evidence of futility).
Plaintiff admits that                                                                          Operational Processing Bulletin 95-3, which addresses
luxury decontrol, does not state such a policy and makes no evidentiary showing establishing
a “policy.” Accordingly, this argument is not sustainable by the papers submitted.
Agency Action Beyond Its Legal
Plaintiff raises two different arguments in relation to whether the agency acted
beyond its legal authority. First, it objects that the DHCR has failed to comply with the
requirements of State Administrative Procedure Act                                             102                                                           The type of
rule subject to the State Administrative Procedure Act has a defined character, which has




[* 5 ]
been stated by the Court of Appeals to be as follows:
“Section                                                                              of the State Administrative Procedure Act
defines a ‘rule’ as ‘the whole or part of each agency statement, regulation or
code of general applicability that implements or applies law, or prescribes a
fee charged by or paid to any agency or the procedure or practice
requirements of any agency’. In Matter of                                             v. Corbisiero, 80 N.Y .2d
77 1, we                                                                              purposes of determining what constitutes a ‘rule’ under
the State Administrative Procedure Act the criterion for constitutional filing
purposes articulated in Matter of Roman Catholic Diocese v. New York State
Dept. of Health, 66                                                                   948, embracing ‘a fixed, general principle to be
applied by an administrative agency without regard to other facts and
circumstances relevant to the regulatory scheme of the statute it administers’
(id., at 95 1). Respondent’s ... policy ... is a rigid, numerical policy invariably
applied across-the-board to all claimants without regard to individualized
circumstances or mitigating factors, and as such falls plainly within the
definition of a ‘rule’ for State Administrative Procedure Act purposes. The
policy cannot be characterized as concerning only the internal management of
the agency                                                                                                                                      v.                                                                                             83                                                             296,301-302
                                                                                                                                                An amplification of these general principles can be found in a dissenting opinion adopted by
                                                                                                                                                the Court of Appeals in Roman Catholic Diocese of Albany v. New York State Dept. of
Health, 66                                                                            948, 95 1 (1                                                                                                                                             where the Court of Appeals reversed the decision
reviewed; Justice                                                                                                                                                                                                                              Appellate Division dissent had stated in relevant part that:
                                                                                                                                                “Neither [precedent] nor the State Constitution’s regulation-filing
requirement (N.Y.                                                                                                                               art.                                                                                           8) were intended to overturn the general
                                                                                      principle of administrative law that an agency is                                                                                                                                                                       to evolve standards, if
consistent with the statutory framework, on a case-by-case basis and to apply
them to the individual proceeding at hand.                                            ‘And the choice made between
proceeding by general rule or by individual, ad hoc litigation is one that lies
primarily in the informed discretion of the administrative agency’ *** New
York case law, up to now, has not been inconsistent with these general
principles of administrative law in ruling that an administrative agency does
not violate the regulation-filing requirement by ‘establishing a guideline for a
case-by-case analysis of the facts’.
“[Where a] rule [is] nothing more than a nonconclusive, nonbinding
guideline to be weighed along with other factors on the public need issue
adjudicating individual cases, there was no need to file it as a regulation.”
(Roman Catholic Diocese   Albany v. New York State Dept. of Health, 109
140, 148                                                                              Dept.




[* 6 ]
Under these standards, the court finds that the                                                   procedure of                                                                     income tax
information, invoked on a case-by-case basis when there is information that an amended
return has been filed, cannot be classified as a “rule” within the meaning of the
Administrative Procedure Act (see, Metropolitan Life Ins. Co. v. New York State Div.
Housing and                                                                                       Renewal, 235                                                                     354 [lst Dept. 19971, DHCR’s major capital
improvement application processing “does not amount to the promulgation of a new rule,
‘invariably applied across- the-board to all claimants without regard to individualized
circumstances or mitigating factors’, in violation of the State Administrative Procedure
Act”) .
Second, plaintiff urges the challenged administrative action of re-verification of
amended tax returns is in violation of the Rent Stabilization Law. Case law does not support
the argument that DHCR must “close the record” long before it issues a final decision. In
Matter   Dworman v. New York State Div. of Housing and Community Renewal, 94
359                                                                                               which also addressed the luxury-decontrol provisions of the Rent Stabilization
Law, the landlord also objected to the receipt and consideration of responsive information
after the time periods contained in the statute. There, the Court of Appeals concluded that
the statement of a time period in the luxury decontrol provisions of the Rent Stabilization
Law “does not divest the Division of authority to forgive a late filing or excusable default in
the sound exercise of its discretion” (94                                                         at 372). The Court stated:
“Significantly, the Rent Stabilization Code states that DHCR may, at
‘any stage of a proceeding * * * for good cause shown, except where
prohibited by the RSL, accept for filing any papers, even though not filed
within the time required by this Code’ (9 NYCRR 2527.5 [d]; see also, 9
NYCRR 2507.5 [d]; 9 NYCRR 2210.1 [unless it conflicts with the statute,
the Rent Stabilization Code applies to all proceedings under the Rent
-5-




[* 7 ]
Stabilization Law]).  Since Administrative Code                                             26-504.3 does not prohibit
DHCR                                                                                        accepting late filings, it may exercise its discretion under the
Code to accept late filings when good cause is established. Further, Code
sections 2507.5 (d) and 2527.5 (d)                                                          DHCR to accept late filings for
good cause shown at ‘any stage of a proceeding’ -- that is, at any point before
the Commissioner *** has entered a final order dismissing the PAR (see,
Matter of                                                                                   v. Halperin, 238                                                   207 [‘a final decision was not
rendered until the resolution of the tenant’s petition for administrative
review’]; see also, 9 NYCRR 2529.8 et seq. [regulations governing
determination’ by the Commissioner]).”  (94 N.Y .2d at 373-374; brackets in
original .)
See also,                                                                                   v. Roldan, 94                                                      853                              similarly rejecting an argument that the
time period formed a statutory constraint prohibiting consideration of subsequently
submitted information.
Here, no statutory time bar constrains the DHCR’s processing of a luxury decontrol
application after it receives comments on the information received from the Division of
Taxation and Finance. Accordingly,                                                          with established law as set forth above, there
is no valid argument that DHCR is prohibited by the the Rent Stabilization Law
seeking re-verification of income after it learns an amended tax return has been filed.
Unconstitutional Administrative Action
The landlord also urges that re-verification is a violation of the Landlord’s equal
protection rights. No argument is advanced which explains this legal contention.
The relief requested suggests that plaintiff seeks to have the court prospectively
mandate the way in which DHCR internally processes this luxury decontrol
2
The plaintiff asks the court to “examine whether the ‘policy’ provides”:                    (a) that
DHCR be advised if the amendment is “a result of an audit or an amended return”; (b)
DHCR be advised if the amendment                                                            any other tax years”; (c) that DHCR “re-
opens any other years ... affected in other” luxury-decontrol applications; (d) that DHCR




[* 8 ]
Specifically, because such processing was committed to the DHCR by the legislature, this
court lacks jurisdiction to grant such relief. The applicable bar was explored by the Court of
Appeals when a New York City landlord - among other items of relief - sought approval to
demolish his building, to evict his rent-control tenants and to                                   from offering renewal
leases to rent-stabilization tenants; the Court of Appeals held:
constitutionally protected jurisdiction of the Supreme Court
does not prohibit the Legislature from conferring exclusive original
jurisdiction upon an agency in connection with the administration of a
statutory regulatory program. In situations where the Legislature has made
that choice, the Supreme Court’s power is limited to article 78 review, except
where the applicability or constitutionality of the regulatory statute, or other
like questions, are in issue.
. [Here, the  provisions of the rent-control and rent-stabilization
laws demonstrate that the Legislature intended DHCR and HPD to be the
exclusive initial arbiters of whether an owner has, in fact, met these
regulatory conditions.  ..                                                                        many references to the need to establish the
necessary facts to the agency’s satisfaction and the other references to
determinations and findings by the agency ... evinces a legislative intent to
have issues arising in the latter class of cases determined, in the first instance,
by the agency.  * * *
“Since concurrent Supreme Court jurisdiction was not contemplated
in this situation and the Constitution does not require it, Supreme Court erred
in entertaining plaintiff‘s claims on the merits. Furthermore, Supreme Court’s
consideration of the delays that purportedly typify the administrative
adjudicative process was inappropriate, since that factor, to the extent it might
ever be relevant at all, would apply only in the application of the doctrine of
‘primaryjurisdiction.’ * * * While the rule is certainly not without
exceptions, no such exception is possible where, as here, the agency’s original
jurisdiction is exclusive.”                                                                       78                                             755, 767 [ 19911;
citations omitted.)
Accordingly, while the court has reviewing authority over an administrative determination of
DHCR, it has no jurisdiction to engage in the refinement of DHCR procedures on the
hold a hearing to “determine if income shifting occurred for the purpose of defeating” the
owner’s application; and, (e) if “other safeguards ... insure the integrity of the deregulation
process” (amended complaint, para. 41).




[* 9 ]
abstract bask advanced in this portion of the petition.
Conclusion
In closing, it is noted that the tenant argues that the two additional claims are
premature or inapplicable to the facts. The fourth cause of action seeks damages for the
claimed delay of a luxury decontrol ruling, which is speculative absent determination of
entitlement to luxury decontrol. The fifth cause of action asserts entitlement to legal fees
under the lease and is similarly premature. Accordingly, these causes of action must fall.
Based upon the foregoing, the complaint is dismissed. No sooner than five days after
service of a copy of this order with notice of entry and a proposed judgment upon plaintiff,
the clerk shall enter judgment accordingly upon the presentation of appropriate papers.
This decision constitutes the order of the court.
Dated:  January                                                                                ,2003

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