93 Ralph, LLC v. N.Y.C. Housing Auth. Law Dep't

KATHERINE LEVINE

Robert H. Gordon, Esq., New York, for Plaintiff. Sonya M. Caloyanides, Esq., General Counsel, New York, for Defendant.
KATHERINE LEVINE, J.

Plaintiff 93 Ralph, LLC (“Plaintiff” or “landlord”) brings this breach of contract action to recover $25,000 from Defendant New York City Housing Authority (“Defendant” or “Housing Authority”) for unpaid Section 8 subsidies and consequential damages. Plaintiff alleges that the Authority improperly suspended subsidy payments between January–June 2011 due to its failure to timely notify plaintiff of defects in the property, as contained in the contract between plaintiff and defendant, and hence failed to give plaintiff an opportunity to cure said defects.

Defendant moves to dismiss the complaint pursuant to CPLR 3211(a)(2) on the grounds that this court lacks subject matter jurisdiction since the plaintiff should have challenged the Housing Authority's failure to give proper notice in a CPLR Article 78 proceeding and the Civil Court has no jurisdiction to hear an Article 78 proceeding. Defendant also moves to dismiss pursuant to CPLR 3211(a)(5) and (7) on the grounds that any claims under an Article 78 proceeding are time barred; and that plaintiff fails to state a cause of action.

Facts

Plaintiff owns an apartment building at 93 Ralph Avenue in Brooklyn, New York. It participates in the federally funded section 8 rent subsidy program (“Section 8”) of the Housing Act (42 USC 1437(g)) which aids “low income families in obtaining a decent place to live, by subsidizing private landlords who would rent to low income tenants.” Rosario v. Diagonal Realty, LLC, 9 Misc.3d 681, 685, 803 N.Y.S.2d 343 (Sup.Ct. Kings Co.2005)citing Cisneros v. Alpine Ridge Group, 508 U.S. 10, 12, 113 S.Ct. 1898, 123 L.Ed.2d 572 (1993). Section 8 authorizes the U.S. Department of Housing and Urban Development (“HUD”) to enter into annual contribution contracts with local public housing authorities so that they may make assistance payments to owners of existing buildings. Rosario, supra, 9 Misc.3d at 681, 803 N.Y.S.2d 343. The Housing Authority is one of the local agencies that administers the Section 8 program. Citadel Estates, LLC v. NYC Housing Authority, 39 Misc.3d 880, 960 N.Y.S.2d 598 (Sup.Ct., Kings Co.2013).

HUD has promulgated regulations that govern the operation and administration of Section 8. See 24 CFR Part 982. Pursuant to 24 CFR §§ 982.305(a)(2), (b)(1)(I), all prospective apartments must meet federal housing qualify standards (“HQS”) and be inspected by the Housing Authority prior to being certified under Section 8. Once certified, the apartments must be inspected at least once annually to ensure their continuous compliance. The regulations prohibit the Authority from paying any subsidies to apartments that do not need federal HQS. 24 CFR § 982.404(a)(3), § 982.452(b)(2), § 982.453(a)(1). Pursuant to 24 C.F.R. § 982.404, the Housing Authority must afford the landlord at least 30 days to correct any non-life threatening HQS violation unless the Housing Authority extends the deadline. See, Matter of 12th & 14th Street Inv., LLC v. New York City Housing Authority, 2013 N.Y. Slip Op. 30696(U), 2013 WL 1562134, 2013 N.Y. Misc. LEXIS 1436 (Sup.Ct., N.Y. Co.2013); Rowe v. NYC Housing Authority, Index No. 029455–10 (Civil Ct., Kings Co.2010).

The relationship between the landlord and the Housing Authority is governed by a Housing Assistant Payment Contract (“HAP”) under which the latter pays the Section 8 landlord monthly housing assistance payments from funds allocated by HUD. These rents constitute the difference between the total rent due for an apartment leased by the landlord to a qualified tenant and the rent due by said tenant under the controlling federal regulations. Citadel Estates, supra, 39 Misc.3d at 883, 960 N.Y.S.2d 598.

Both sides agree that the plaintiff and the Housing Authority entered into a HAP on or about May 1, 2009. According to the HAP, Part B subsection 7, defendant must make monthly payments so long as the plaintiff complies with all the provisions of the contract. Part B, subsection 3a, requires the landlord to “maintain the contract unit and premises in accordance with the HQS. Subsection 3c provides that “if the owner does not maintain the contract unit in accordance with the HQS the [Authority] may exercise any available remedies which include the termination of housing assistance payments.” Subsection 3e allows the Authority to inspect the contract unit and premises as the Authority sees fit in accordance with the HQS. Per Subsection 3f, the Housing Authority must notify the owner of any HQS defects revealed by the inspection and the Authority shall not, pursuant to Subsection 3d, make any housing assistance payments if the contract unit does not meet the HQS, unless the owner corrects the defect within the period specified by the Authority and the Authority verifies the correction.”

It is clear that the HAP contract does not spell out the time limit in which the Authority must notify the landlord of the HQS defects or how much time the Authority must give the landlord to cure the defects before it stops making HAP payments. While Subsection 3d mandates that the landlord/owner must cure the defect within 24 hours if the defect is “life threatening,” it does not specify the cure period for non life threatening defects, leaving it up to the Housing Authority to determine the necessary period.

Plaintiff asserts that the Housing Authority has “clarified the process” by a memo which states that once an inspection is done the Authority must mail the results of the inspection to the landlord within one business day via an “NE–1 Notice.” This Notice advises the landlord that it has 30 days to complete the repairs, which if complied with will obviate the suspension of payments. However, plaintiff failed to attach this memo to any of its papers.

Suspension of the Subsidy

By NE–1 letter dated December 29, 2010, the Authority indicated that based upon its inspection of the premises on December 3, 2010, it had found six “serious HQS” violations. The notice indicated that the window guard violation had to be corrected within 10 days of the inspection and all other serious violations had to be corrected as “expeditiously as possible.” The notice then stated that unless plaintiff notified the Authority that the appropriate remedies had been properly made and that such corrective measures were verified, the Authority would suspend subsidies on December 31, 2010. The notice specified that the landlord had to notify the Authority within 20 days after the inspection that the repairs had been made so that the Authority could reinspect the premises on December 28, 2010.

Both sides agree that the Authority suspended Plaintiff's subsidy for the assisted apartment effective January, 2011. While not addressed by plaintiff, the Housing Authority indicates that on February 23, 2011, it again inspected the apartment and found that two serious HQS violations existed, including the pre-existing violation of mouse droppings. By NE–1 letter dated March 9, 2011, the Authority notified the landlord that it would suspend the subsidy on March 25, 2011, unless the repairs were made within 20 days of the inspection. If the landlord failed to comply, the Authority would offer the family a voucher to enable them to seek other housing and would terminate the HAP contract without further notice if the family was approved for a transfer. On June 16, 2011, the subject premises passed an inspection and the Authority lifted its payment suspension for the apartment on July 1, 2011.

On or about October 4, 2011, the Housing Authority was served with a summons and complaint for unpaid housing subsidies from January through June 2011. The complaint alleges that the Authority “breached the HAP contract by suspending the Section 8 payments without following the notice procedure.” Rather than sending the NE–1 Notice on December 6, 2010, as required by the memo, defendant mailed the letter 28 days after the inspection. The Notice was received by plaintiff on January 7, 2011, making it virtually impossible for plaintiff to make the necessary repairs prior to December 28, 2010 when the Housing Authority was supposed to reinspect, or to avoid suspension of payments. The complaint avers that plaintiff was thus damaged by the wrongfully suspended subsidy payments and incurred various consequential damages to the extent of $25,000.

As set forth previously, neither side has produced a memo which defines the time line in which the Authority must notify a landlord of HQS violations.

Discussion

In determining a motion to dismiss pursuant to CPLR § 3211, the court accepts the facts alleged in the complaint as true, and the plaintiff is accorded the benefit of every favorable inference. Leon v. Martinez, 84 N.Y.2d 83, 614 N.Y.S.2d 972, 638 N.E.2d 511 (1994). The court solely determines whether “the facts fit within any cognizable legal theory.” Id. at 84, 614 N.Y.S.2d 972, 638 N.E.2d 511. See, 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 746 N.Y.S.2d 131, 773 N.E.2d 496 (2002).

Defendant moves to dismiss this proceeding because plaintiff is challenging an administrative determination of the Housing Authority to suspend or withhold Section 8 subsidy payments, which can only be brought pursuant to CPLR Article 78. It also asserts that plaintiff cannot cast its action as one resting in contract simply because there is a HAP contract, because plaintiff claims inextricably arise from the Housing Authority's administration of the Section 8 program and its alleged failure to comply with regulations and procedures governing said program. Finally, defendant asserts that the Supreme Court has exclusive jurisdiction over Article 78 proceedings.

Plaintiff counters that Civil Court is the proper forum as its complaint is based in contract law since defendant breached the HAP contract by suspending the Section 8 payments without following the notice and time to cure procedures laid out in subsection 3(f) of the contract. Plaintiff elaborates that the “essence” of it claim is breach of an express contractual right and that the Housing Authority “clarified the process” set forth in subsection 3(d) of the contract by issuing a memo, that was not produced by either party, which mandates that the results of an inspection be mailed to the landlord on the next business day.

It is well established that a challenge to an administrative decision of the Housing Authority must be brought in a CPLR Article 78. Citadel Estates v. NYC Housing Authority, 39 Misc.3d 880, 960 N.Y.S.2d 598 (Sup. Ct., Kings Co.2013); Fieldbridge Associates v. Flowers, N.Y.L.J., 4/21/94, at 26, col. 2 (App.Term, 2nd Dept.1998); Rowe v. NYC Housing Authority, Index # CV–029455–10 (Civil Ct., Kings Co. 9/30/10); Vincenzi v. Strong, 2007 N.Y. Slip Op. 51534(U), 16 Misc.3d 1121(A), 2007 WL 2296505 (Civ. Ct., Bronx Co.2007); 1801 Weeks Avenue, Inc. v. Crawford, 182 Misc.2d 251, 697 N.Y.S.2d 503 (Civ.Ct., Bronx Co.1999). The courts have repeatedly found that a challenge to the Housing Authority's suspension of monthly Section 8 payments to the landlord must be brought via an Article 78 proceeding in Supreme Court. See, Citadel Estates, supra, 39 Misc.3d at 885, 960 N.Y.S.2d 598;Mtr. of 12th & 14th Street Investor, LLC v. NYC Housing Authority, 2013 N.Y. Slip Op. 30696(U), 2013 N.Y. Misc. LEXIS 1435, 2013 WL 1562134 (Sup.Ct., N.Y.Co.2013); 1440 Pacific Realty Corp. v. NYC Housing Authority, Index # 046636/10 (Civil Ct., Kings Co. 8/25/10); Undercliff Holding LLC v. NYC Housing Authority, Index # 32831/09 (Civil Ct., N.Y Co. 1/22/10); 960 Sherman Ave. Ass'n v. NYC Housing Auth., Index # 010190/09 (Civil Ct., N.Y. CO. 9/16/2000). This is because it is the controlling regulations, and not the HAP contract, which govern the Housing Authority's ability to make HAP payments contingent upon the apartment's meeting HQS as established by HUD (24 CFR §§ 982.401 and 404(a)). Similarly, it is the regulations and not the HAP contract which mandate annual inspectionsand compliance with the HQS (24 CFR § 982.405). Citadel, supra, 39 Misc.3d at 885–86, 960 N.Y.S.2d 598.

On the other hand, where a public official or governmental body breaches a contract resulting in damages to the plaintiff, “the claim must be resolved through the application of traditional rules of contract law.” Abiele Contracting Serv. v. New York City School Const. Authority, 91 N.Y.2d 1, 8, 666 N.Y.S.2d 970, 689 N.E.2d 864 (1997); Citadel Estates, supra, 39 Misc.3d at 884, 960 N.Y.S.2d 598. In Abiele, the Court held that the plaintiff could maintain a plenary action for a breach of contract where the School Construction Authority terminated a contract with a private contractor to build a school. Similarly, a dispute concerning the sum due under a contract to transport handicapped children to school should be properly resolved in a breach of contract action as opposed to a mandamus to compel payment. Steve's Star Serv. v. County of Rockland, 278 A.D.2d 498, 500, 718 N.Y.S.2d 72 (2d Dept.2000).

Ultimately, whether a plenary action or a special proceeding is appropriate is dependent upon whether the petitioner asserted that the governmental action was in violation of lawful procedure or was arbitrary and capricious and an abuse of discretion, in which case an Article 78 proceeding is the appropriate vehicle. Abiele, supra, 91 N.Y.2d at 8, 666 N.Y.S.2d 970, 689 N.E.2d 864 (1997). See, 35–41 Clarkson LLC v. NYC Housing Authority, 2012 WL 5992094 (S.D.N.Y.2012). Only if the focus of the controversy is on an agency's breach of an express contractual right, or on the agency's violation of the implied obligations of good faith, fair dealing and cooperation would a plenary action be appropriate. Abiele, supra, at 7–8, 666 N.Y.S.2d 970, 689 N.E.2d 864.See, DDEH 291 Pleasant LLC v. Reinert and Dept. of HPD, 2009 N.Y. Slip Op. 32790(U), 2009 WL 5072276, 2009 N.Y. Misc. LEXIS 5445 (Sup Ct. N.Y. Co.2009),

In the one case where the plaintiffs specifically challenged the timeliness of the NE–1 notice concerning HQS violations, the Southern District found that the plaintiff could raise its due process arguments re notice in an Article 78 proceeding as opposed to a 42 U.S.C. § 1983 proceeding. 35–41 Clarkson LLC, supra. The court acknowledged that plaintiff might also have a breach of contract claim in state court, citing Abiele supra, but expressed no opinion as to the merits of such a contract claim or whether plaintiffs claims “are more appropriately addressed by an Article 78 proceeding or a plenary action for breach of contract.” Id. at p. 6, 666 N.Y.S.2d 970, 689 N.E.2d 864. All the other reported cases involving the ambiguity or timeliness of an NE–1 notice have centered around when the four month statute of limitations contained in Article 78 begins to run. These courts have therefore implicitly found that a challenge to an NE–1 notice rests in an Article 78 proceeding and not a breach of contract action. See, Mtr. of 193 Realty LLC v. Rhea, 2012 N.Y. Slip Op. 51865(U), 37 Misc.3d 1203(A), 2012 WL 4477616 (Sup. Ct., N.Y. Co.2012); Mtr. of Bramble Weilders, Inc. v. New York City Housing Auth., 2012 N.Y. Slip Op. 32181(U), 2012 WL 3638859, 2012 N.Y. Misc. LEXIS 4015 (Sup.Ct., NY.Co.2012). Mtr. Of 731 Gerard Watson, LLC v. NYC Housing Authority, 2011 N.Y. Slip Op. 31349(U), 2011 N.Y. Misc. LEXIS 6747 (Sup.Ct., N.Y. Co.2011).

Plaintiff in essence contends that the Authority acted in an arbitrary and capricious manner by sending out an untimely notice of the defects so that it had no time to cure the defects and avoid of suspension of housing assistance payments. Alternatively, plaintiff contends that a document, which it fails to attach, requires the Authority to notify it of the defects within one day. Plaintiff tacitly admits that the Authority created this document and that it is not incorporated into the HAP contract.

Plaintiff cannot recast the gravamen of its complaint as one in contrast merely because the HAP contract requires that a landlord be notified of HQS violations. The HAP contract itself is a creation of the federal regulations. It is clear that the HAP contract does not spell out the time limit in which the Authority must notify the landlord of the HQS defects or how much time the Authority must give the landlord to cure the defects before it stops making HAP payments. Rather, is up to the discretion of the Authority as to when it sends out the notice and how many days it gives a landlord to cure the defects before it will suspend the Section 8 subsidies. This is precisely the type of decision which must be challenged through an Article 78 proceeding. See, DDEH 291 Pleasant, LLC v. Reinert, 2009 N.Y. Slip Op. 32790(U), 2009 WL 5072276, 2009 N.Y. Misc. LEXIS 5445 (Sup Ct., N.Y. Co.2009) (where HPD had a choice whether to reduce housing assistance payments) (it abused its discretion, rather than violating the contract, when it decided to suspend subsidy payments rather than terminating contract).

An article 78 proceeding may only be brought in the Supreme Court. CPLR 7804(b); Mtr. of Sovocool v. David, 7 A.D.2d 262, 266, 182 N.Y.S.2d 553 (3d Dept.1959); Matter of Voccola v. Shilling, 88 Misc.2d 103, 109–111, 388 N.Y.S.2d 71 (Sup.Ct., Kings Co.1976). The Civil Court lacks jurisdiction to hear appeals of government actions, which, as set forth above, must be brought pursuant to article 78 in Supreme Court. Fuca v. City of New York, 15 Misc.3d 86, 87, 836 N.Y.S.2d 757 (App.Term, 2d Dept.2007). Bey v. City of New York, 32 Misc.3d 946, 930 N.Y.S.2d 806 (Civil Ct., Kings Co.2011). The Civil Court is a court of limited jurisdiction, possessing only that subject matter provided by law. Fuca, supra, 15 Misc.3d at 88, 836 N.Y.S.2d 757. See, Bey, supra, 32 Misc.3d at 947–48, 930 N.Y.S.2d 806 (Civil Ct., Kings Co.2011). Where the Civil Court, or any other lower court, lacks jurisdiction to hear a case, it may not determine any matter raised therein which is outside of the court's jurisdiction. See Fuca v. City Of New York, supra (small claims court without jurisdiction to determine whether plaintiff filed the action within four months of determination). Put another way, where the Civil Court lacks jurisdiction, any proceedings had in that court are a nullity. Kaminsky v. Connolly, 73 Misc.2d 789, 342 N.Y.S.2d 394 (App. Term, 1st Dept. 1972); Bey, supra at 948, 930 N.Y.S.2d 806.

As the Civil Court lacks subject matter jurisdiction, it is beyond its power to review an administrative determination of the Housing Authority ( Rowe v. New York City Housing Authority Law Department, Index # CV–029455–10 (Civil Ct., Kings Co.2010)), or rule upon whether the instant challenge was brought within the four month statute of limitations prescribed in CPLR 7804 or the merits of the Article 78 proceeding. See CPLR 217(1).

However, rather than dismiss the case for lack of jurisdiction pursuant to CPLR 3211(a)(2) for lack of jurisdiction, this Court has the authority under article VI, § 19(f) to transfer this case to Supreme Court. See, Bey v. City of New York, 32 Misc.3d 946, 930 N.Y.S.2d 806 (Civil Ct., Kings Co.2011). Transfer of an action over which the court has not jurisdiction is required on the court's own motion. Kaminsky v. Connolly, supra, 73 Misc.2d at 790, 342 N.Y.S.2d 394.See also, Baptist Temple Church v. Mann, 194 Misc.2d 498, 755 N.Y.S.2d 780 (Civil Ct., N.Y. Co.2002) (where petitioner's claim for affirmative relief—the eviction of the respondent pastor cannot be accomplished without a declaratory judgment that the pastor was properly terminated, which was solely within the jurisdiction of the Supreme Court, the proper remedy was not dismissal of the case but transfer of the case from Civil to Supreme); Simmons v. Simmons, 2 Misc.3d 536, 541, 769 N.Y.S.2d 711 (Civil Ct., Queens Co., 2003) (the directive to transfer is cast in mandatory, and not permissive, terms); Siegel, Practice Commentaries, McKinney's Book 29A, CCA 202, at 37.

Furthermore, within the context of other courts of limited jurisdiction, Article VI § 19 has been interpreted as mandating transfer rather than dismissal where such lower court lacked jurisdiction. See Mtr. of Braker, 123 A.D.2d 585, 507 N.Y.S.2d 388 (1st Dept.1986) (Article VI, § 19(d) mandates transfer, rather than dismissal when the Surrogate's Court lacks jurisdiction); Mtr. of Rita F. v. Neil F., 12 Misc.3d 894, 819 N.Y.S.2d 439 (Family Court, N.Y. Co.2006) (article VI, § 19(e) obliges family court to transfer actions over which it has no jurisdiction to criminal court rather than dismiss the case for lack of jurisdiction).In light of the above, this court is compelled to transfer the case to Supreme Court, Kings County rather than dismiss it.

To implement the transfer, the plaintiff shall purchase an index number in Supreme Court and a request for judicial intervention and complete and file the appropriate forms and papers, with a copy of this order. The plaintiff shall then present proof of the filing to the Clerk of the Civil Court, who shall then transfer this action and motion to Supreme Court. Simmons v. Simmons, supra, 2 Misc.3d at 544, 769 N.Y.S.2d 711.See, Kaufman v. CBS, Inc., 135 Misc.2d 64, 65–66, 514 N.Y.S.2d 620 (Civ.Ct., N.Y. Co.1987).

The foregoing constitutes the decision and order of the court.