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In re Callen

Supreme Court of New York, First Department

January 16, 2020

In re Robinson Callen, etc., Petitioner-Respondent,
v.
New York City Loft Board, Respondent-Appellant, Richard Fiscina, et al., Respondents-Respondents. In re Richard Fiscina, Petitioner-Respondent,
v.
New York City Loft Board, Respondent-Appellant, Robinson Callen, etc., et al., Respondents-Respondents.

         Respondent New York City Loft Board appeals from judgments of the Supreme Court, New York County (Arlene P. Bluth, J.), entered April 10, 2018, granting the petitions and annulling its determination, dated March 16, 2017, which rejected applications for reconsideration of a prior determination rejecting a proposed settlement agreement between petitioner building owner and residential tenants, and remanded the matter for administrative resolution of the tenants' application for Loft Law coverage.

          Zachary W. Carter, Corporation Counsel, New York (Diana Lawless and Scott Shorr of counsel), for appellant.

          Belkin Burden Wenig & Goldman, LLP, New York (Magda L. Cruz, Joseph Burden and Sherwin Belkin of counsel), for Robinson Callen, respondent.

          David E. Frazer, New York, for Richard Fiscina, respondent.

          Goodfarb & Sandercock, LLP, New York (Margaret B. Sandercock and Elizabeth Sandercock of counsel), for Luke Weinstock, Zenia De La Cruz and Maria Theresa Totengco, respondents.

          Rolando Acosta, P.J. Dianne T. Renwick Sallie Manzanet-Daniels Anil C. Singh, JJ.

          OPINION

          RENWICK, J.

         This article 78 proceeding stems from an application for the legal conversion of certain lofts in New York City from commercial use to residential use pursuant to Article 7-C of the Multiple Dwelling Law (§ 283), commonly known as the Loft Law. Where owners register covered buildings and comply with the Loft Law's requirements, the Loft Law will deem a building an "interim multiple dwelling (IMD)" (Multiple Dwelling Law § 284[1]), which would allow the owner to collect rent from residential occupants, despite the lack of a residential certificate of occupancy (Multiple Dwelling Law §§ 283, 285, 301). The Loft Law requires landlords to bring converted residences up to code and prevents them from charging tenants for improvements until the issuance of a certificate of occupancy (Multiple Dwelling Law § 284(1)). The Loft Law is administered by the New York City Loft Board (Multiple Dwelling Law § 282).

         In March 2014, four residents of the building located at 430 Lafayette Street Rear submitted Loft Law coverage applications seeking to compel the owner, Robert Callen, to legalize the building in compliance with the Loft Law and to have the Board deem the building an IMD. Callen also owns an adjoining building (front building), which is rent-stabilized. Callen answered, opposing the application primarily on the ground that the four residents of the subject building were not covered by the Loft Law as their units were not residentially occupied during the window period of the Loft Law (12 consecutive months during 2008 and 2009). [1]

         On January 21, 2015, the parties entered into a settlement agreement, which they submitted to the Loft Board, providing that the tenants would withdraw the coverage application with prejudice, and Callen would recognize the tenants as covered by the Rent Stabilization Law. Callen would register the units with DHCR as rent-stabilized and would not increase the rents until a certificate of occupancy was obtained. Callen also agreed to use reasonably diligent efforts to obtain a new certificate of occupancy for residential use.

         The Administrative Law Judge issued a decision recommending that the Board accept the tenants' withdrawal of the coverage application with prejudice, without making a recommendation as to the agreement. On March 16, 2015, the Board issued an order rejecting the agreement, including the tenants' request to withdraw the coverage application with prejudice, as against public policy, and remanding the application for further adjudication on the coverage application. The Board explained that given the absence of a residential certificate of occupancy, it is illegal for the tenants to reside in the building, unless they obtain protection under Multiple Dwelling Law § 283, which permits residential use in an IMD prior to the issuance of a residential certificate of occupancy, and the Board found that the tenants did not have such protection because they agreed to withdraw their coverage claims.

         Callen and the residents then filed applications for reconsideration of the Board's order, arguing that the Board erred as a matter of law in remanding the application because Callen had already registered the units with DHCR, the building could be considered a "single horizontal multiple dwelling" with the already rent-stabilized front building, and the building "cannot be covered by two separate regulatory regimes." They further argued that the Board lacked authority to compel the parties to litigate or deny the tenants the right to withdraw their coverage application, especially where the Board might ultimately conclude that either the units or the tenants were not entitled to Loft Law coverage.

         On March 16, 2017, the Board denied the reconsideration applications. In June and July 2017, Callen and one of the residents filed separate article 78 petitions, alleging that the Board's orders were arbitrary and capricious in that the Board compelled the parties to litigate the coverage applications and prevented the building from being covered by the Rent Stabilization Law. The Board answered, arguing that its orders were not arbitrary or capricious.

         Supreme Court granted the petitions on the ground that the order for reconsideration and the underlying Board order were without rational basis. Specifically, the court found that although the building owner and tenants have settled their differences, the Board "has refused to accept the Settlement," leaving the tenants to either default at the forced hearing or to "spend plenty of money and time litigating something they do not wish to litigate. Both those options are wasteful and make no sense." The court did not find irrational the Board's position of not approving a settlement that it considered inappropriate. Nevertheless, the court concluded that even if the ...


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