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Overcharge Remanded for Recalculation Under 2019 HSTPA

By Magda L. Cruz, Esq., of Belkin Burden Wenig & Goldman, LLP

The Housing Stability Tenant Protection Act of 2019 (“HSTPA”) made numerous changes to the rent overcharge provisions of the Rent Stabilization Law, including extending the exposure to damages for rent overcharges, both compensatory and treble damages, to six years. In addition, section 7 of Part F of the HSTPA stated that the amendments would “take effect immediately and shall apply to any claims pending or filed on or after such date.” The effective date of the new law was June 14, 2019.

In the first appellate case interpreting the new law, and specifically the section 7 provision regarding “claims pending,” the Appellate Division, First Department unanimously ruled in Dugan v. London Terrace Gardens, L.P., that the HSTPA would retroactively apply to orders awarding overcharge damages, which were on appeal, even if the orders had finally determined the amount of damages to be awarded. The Appellate Division in Dugan vacated that portion of the overcharge order, entered on November 22, 2017, by the lower court that had calculated overcharge damages based on the “four-year rule” in the pre-existing law and remanded the case for the lower court to set forth “a methodology for calculating rents and overcharges consistent with the HSTPA” after further submissions from the parties.

The Appellate Division in Dugan made a point to emphasize that although the lower court had followed the law in effect at the time it rendered the overcharge order in November 2017:
That law has changed, and significantly so. In view of the comprehensive changes made by the HSTPA with respect to the proper method of calculating legal rents and overcharges, we must remand the matter to the motion court so that it can, in the first instance set forth a methodology consistent with the HSTPA.

The Appellate Division in Dugan recognized that the case had been pending for many years. In fact, the Dugan case was one of the first-class actions that was brought in the wake of the Court of Appeals decision in Roberts v. Tishman Speyer Props., L.P., in 2009. In the interim ten years, the parties in Dugan had extensively litigated numerous issues, including the difficult and complex question of how to set the rents of apartments that had been erroneously deregulated while the owner received J-51 tax benefits. When that question seemed to have been finally resolved by the lower court in the overcharge order, it became an open question, again, after the passage of the HSTPA in June 2019. The Appellate Division stated:

We recognize that this action has been pending for an extended period of time, and that our decision may involve further motion practice. Nevertheless, because the legislature has made changes to the law that directly impact this case, and has made those changes applicable to this pending litigation, a remand is appropriate.

The Appellate Division in Dugan rejected arguments by the owners that a retroactive application of the HSTPA amendments to overcharge orders, issued under pre-existing law, violated their due process rights. The owners argued that changing the methodology at this late juncture in the case, which would necessarily result in significantly higher money damages, higher legal costs, and more years of litigation, was not how the “claims pending” provision in the HSTPA should be construed or applied. The Appellate Division ruled otherwise, stating that “absent deliberate or negligent delay, ‘[w]here a statute has been amended during the pendency of a proceeding, the application of that amended statute to the pending proceeding is appropriate and poses no constitutional problem.’”

The Court simply construed the term “claims pending” broadly to apply the new expanded liability for rent overcharge under the HSTPA to an overcharge order, decided under the old law, that was still being reviewed on appeal. This ruling now sets the precedent in the First Department for re-opening countless other overcharge cases that are pending in court. 

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