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In Re London Terrace Gardens, L.P v. City of New York

October 23, 2012


The opinion of the court was delivered by: Abdus-salaam, J.

Matter of Matter of London Terrace Gardens, L.P. v City of New York

Appellate Division, First Department

Abdus-Salaam, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on October 23, 2012

Peter Tom, J.P. Angela M. Mazzarelli Karla Moskowitz Dianne T. Renwick Sheila Abdus-Salaam, JJ.

Petitioner/plaintiff appeals from the order of the Supreme Court, New York County (Judith J. Gische, J.), entered May 6, 2011 which, inter alia, granted respondents/defendants' motions to dismiss the petition brought pursuant to CPLR article 78 and the plenary action.

Petitioner/plaintiff London Terrace Gardens, L.P., seeks to rescind its participation in the City's J-51 tax incentives program following the Court of Appeals decision in Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]). That decision held that the owners of rent-stabilized apartments in New York City "[are] not entitled to take advantage of the luxury decontrol provisions of the Rent Stabilization Law (RSL) [Administrative Code of City of NY § 26-501 et seq.] while simultaneously receiving tax incentive benefits under the City of New York's J-51 program" (id. at 280). This Court has given retroactive effect to Roberts (see Roberts v Tishman Speyer Props., L.P., 89 AD3d 444 [1st Dept 2011]; Gersten v 56 7th Ave. LLC, 88 AD3d 189, 198 [1st Dept 2011]).

This proceeding and plenary action were commenced after defendant New York City Department of Housing Preservation and Development (HPD) refused London Terrace's offer to "unwind" its J-51 arrangement with HPD and to tender repayment of all J-51 benefits, in consideration for which HPD would deem the certificates granting tax abatement benefits to be void and of no effect, thereby nullifying its prior determination of eligibility for J-51 benefits. Petitioner/plaintiff proposed that HPD declare that London Terrace "is no longer subject to the provisions of the J-51 program, including but not limited to any rent regulatory provisions contained therein." The "unwinding" agreement would be conditioned upon entry of a final order and judgment by a court of competent jurisdiction, "directing and binding DHCR to treat [London Terrace] as subject to no other rent stabilization laws and requirements than would have been applicable had [London Terrace] never been granted J-51 benefits, with said order and judgment being binding upon the tenants as well." HPD took the position that there is no provision for voluntary withdrawal, and that rescission is not effective.

London Terrace's argument in support of rescission is that the Court of Appeals decision makes it clear that the J-51 arrangement was based on a mutual mistake of the law on the part of London Terrace, the City and HPD, and that London Terrace would not have applied for such benefits if, as a result of receiving the benefits, it would be precluded from exercising luxury decontrol. There is no provision in the J-51 program for unilateral withdrawal from the program or for repaying the tax benefits in exchange for rescission from the program nunc pro tunc (see generally RPTL 489; Administrative Code of the City of New York § 11-243). On the contrary, the Rules of the City of New York provide that "rent regulation [requirements] shall not be terminated by the waiver or revocation of tax benefits (28 RCNY 5-03[f][3][ii]). London Terrace asserts that it is not seeking a waiver of previously accepted benefits but instead, a finding that the benefits are deemed void ab initio. Still, in practical effect, under the guise of rescission, London Terrace is seeking a waiver, which is not permitted under the Rules of the City of New York.

Putting aside the semantics of whether London Terrace is seeking a waiver under the cloak of rescission, the remedy of rescission is not available here. The J-51 program is a tax benefit program - - there is no contract or agreement to rescind (see RPTL 489; Wisconsin & Michigan Ry. Co. v Powers, 191 US 379 [1903] [Act providing tax exemption to encourage building and operation of railroads did not establish a contract between railway and state]). London Terrace's reliance on Matter of Gould v Board of Educ. of Sewanhaka Cent. High School Dist. (81 NY2d 446 [1993]) is misplaced. In Gould, a teacher submitted her resignation and the school board accepted it, "all premised on a mutual mistake of fact as to a critical element: that [the teacher] was only a probationary employee" (81 NY2d at 453). As explained in Gould, a contract is voidable and subject to rescission where there has been a mutual mistake of fact, "[t]he idea [being] that the agreement as expressed, in some material respect, does not represent the meeting of the minds' of the parties" (81 NY2d at 453 [citations omitted]). Here, there is no mutual mistake of fact.

Furthermore, even though DHCR, and perhaps also HPD, were under the same mistaken interpretation of the Rent Stabilization Law as was London Terrace prior to the Court of Appeals decision in Roberts, that interpretation is entirely unrelated to HPD's confirmation of London Terrace's eligibility for the J-51 program. As indicated in the J-51 Certificates issued by HPD, the presence of decontrolled units was relevant to HPD indetermining the amount of J-51 benefits to be provided. Thus, any mistake as to the law by HPD regarding whether units could be decontrolled while receiving J-51 benefits was immaterial to HPD's decision to accept London Terrace into the J-51 program. Moreover, "CPLR 3005 does not permit a misreading of the law by any party to cancel an agreement' (Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3005, at 621)" (Symphony Space v Pergola Props., 88 NY2d 466, 485 [1996], citing Mercury Mach. Importing Corp. v City of New York, 3 NY2d 418 [1957] [under Civil Practice Act section 112-f, the predecessor statute to CPLR 3005, taxpayers were denied reimbursement for taxes paid under law subsequently held to be unconstitutional]), nor is it a basis for granting London Terrace the relief of rescission from the J-51 program.

Finally, London Terrace fails to state a cause of action under the Due Process and Takings Clauses of the United States Constitution, or pursuant to 42 USC ยง 1983. London Terrace alleges that without rescission, "it will have surrendered a valuable statutory right [to receive luxury decontrol], without having had an opportunity to know what the law is and to conform conduct accordingly as required by the United States Constitution." However, this Court has held that the Court of Appeals decision in Roberts construed a statute and did not create a new legal principle (89 AD3d 444, 446 [1st Dept 2011]; Gersten v 56 7th Ave. LLC, 88 AD3d 189, 198 [1st Dept 2011]). In Roberts (id. at 445-446), we agreed with the motion court's assessment that retroactive application of the Court of Appeals decision in Roberts would not violate due process because it was not unforeseen or an arbitrary change in the law. While London Terrace attempts to distinguish Roberts and Gersten because in those cases, in contrast to London Terrace, which entered the program in 2003, the ...

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