153-155 Essex St. Tenants Assn. v Kahan |
2004 NY Slip Op 50769(U) |
Decided on May 21, 2004 |
Civil Court Of The City Of New York, New York County |
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. |
This opinion is uncorrected and will not be published in the printed Official Reports. |
153-155 ESSEX STREET TENANTS ASSOCIATION, Petitioner,
against JACOB KAHAN, KAHAN FAMILY IRREVOCABLE TRUST and 153 ESSEX STREET REALTY CORP., Respondents, DEPARTMENT OF HOUSING PRESERVATION AND DEVELOPMENT OF THE CITY OF NEW YORK, |
Petitioner initiated this Housing Part proceeding seeking an order directing respondents to correct conditions in the building resulting from a fire. As their fourth affirmative defense, respondents allege that "[i]t is economically infeasible for Respondents to proceed with the repairs needed to correct the damage done to the Subject Building." Petitioner seeks permission to conduct an inspection of the building and an examination before trial of respondent Jacob Kahan to obtain information related to the affirmative defense.
The defense of economic infeasibility is not provided for in the Housing Maintenance [*2]Code or other statutes that govern HP proceedings. Through common law, the courts have embraced this equitable defense. Succinctly stated, the defense is available if it would cost more to repair a building than the building would be worth after the repairs. It leaves the option to restore a building with the affected property owner, entitling a landlord to demolish a building and recompense rent-regulated tenants for the value of their regulated tenancies. Bernard v. Scharf, 246 AD2d 171, 175 (1st Dept 1998).
Economic infeasibility is an affirmative defense which must be proven by a fair preponderance of the credible evidence. Buchanan v. Toa Construction Corp., NYLJ, May 31, 1989, at p 29, col 1 (App Trm 1st Dept), leave to appeal denied NYLJ, November 24, 1989 (App Div 1st Dept). In evaluating the defense, the Court looks to certain factors including the actual or assessed value of the premises, any current offers for the property, the tax assessment of the building, and the financial operating statement of the premises, including the rent roll. See Gonzalez v. Navarro, NYLJ, August 10, 1994, at p 25, col 2 (Civ Ct Kings Co). The owner must present proof of the total economic viability of the building. Eyedent v. Vickers Management, 150 AD2d 202 (1st Dept 1989).
The Eyedent Court also found relevant the question of whether the alleged economic hardship the owner now faces in making the needed repairs was self-inflicted by its failure to properly maintain the building over the years. "The defense is not intended to be an incentive for unscrupulous owners to permit their properties to decay beyond the point of reasonable rehabilitation and thus obtain an unwarranted windfall." Eyedent, supra at p. 205. The defense is also not available if the owner violated its statutory obligation or withheld services illegally to force residents to leave. In either circumstance, an owner will be estopped from asserting the defense. Bernard v. Scharf, 246 AD2d 171 (1st Dept 1998); Reinbold v. Gottlieb, NYLJ, May 31, at p 21, col 2 (App Trm 1st Dept); DHPD v. St. Thomas Equities Corp., 128 Misc2d 645 (App Trm 2nd Dept 1985).
Discovery is not inherently hostile to the nature of a summary proceeding. 42 West 15th Street Corp. v. Friedman, 208 Misc 123 (App Trm 1st Dept 1955). Discovery when properly employed promotes efficiency in the litigation process. Because of this fact, exceptions have emerged to the presumption against discovery in summary proceedings. Dubowsky v. Goldsmith, 202 AD 818 (2nd Dept 1922). For example, a presumption in favor of the need for discovery pertains to holdover proceedings based on allegations of nonprimary residence and nonpayment proceedings involving the calculation of complex lease escalation formulas. See Pamela Equities Corp. v. Frey Co., 120 Misc2d 281 (Civ Ct NY Co 1983); New York University v. Farkas, 121 Misc2d 643 (Civ Ct NY Co 1983).
In determining whether "ample need" for disclosure has been established, the Court should consider the following factors: (1) whether, in the first instance, the respondents have asserted facts to establish the defense of economic infeasibility. Thus, a fishing expedition utilized by the tenants to rebut the defense should never be permitted; (2) whether there is a need to determine information directly related to the defense; (3) whether the requested disclosure is carefully tailored and is likely to clarify the disputed facts; (4) whether prejudice will result from the granting of an application for disclosure; and (5) whether the prejudice can be diminished or alleviated by an order fashioned by the court for this purpose. New York University v. Farkas, supra. [*3]
In applying this criteria to the instant case, this Court holds that in Housing Part proceedings where the owner successfully asserts the affirmative defense of economic infeasibility, a presumption in favor of limited disclosure should be made by a court entertaining an application under CPLR § 408.
First, respondent has set forth facts that could establish the affirmative defense, namely a report from a licensed contractor-appraiser that estimates the cost to repair the building would be $1,050,587. Second, there is a need to clarify the information related to the defense, i.e., the actual or assessed value of the premises, any current offers for the property, and the financial operating statements of the premises including the rent roll.
Most persuasive is the fact that much of this information is likely to be within the knowledge of the respondents. For example, the information related to the maintenance history of the building is not generally of public record. To suggest that petitioner rely solely on cross-examination as the basis to test the existence and/or reliability of the information provided by respondents would place the tenants at a distinct disadvantage where the end result could be the loss of their regulated tenancies.
The Court can carefully tailor the requested disclosure. In the instant proceeding, disclosure shall be limited to access to the building for the purpose of allowing petitioner's expert to inspect the building and develop their own estimate as to the cost of restoring the building to habitable condition. See CPLR 3120. As to the other relevant information, the Court shall permit petitioners to serve written interrogatories directly related to the relevant information solely within the knowledge of respondents. See CPLR §3130. The Court denies petitioners request for an oral examination of respondents as unduly burdensome in the context of this proceeding.
Finally, the Court's limitation as to the scope of discovery eliminates any demonstrable prejudice in this Housing Part proceeding since petitioners are required to continue paying rent as required by their lease and any applicable statutes, regulations or orders from appropriate governmental agencies.
On the basis of the foregoing, this proceeding is marked off the Court's calendar until discovery is completed and may be restored by motion or stipulation. Discovery shall be completed no later than 60 days from service of this decision/order with notice of entry.
The Court shall mail courtesy copies of its decision/order to counsel.
Dated: May 21, 2004
______________________________
KEVIN C. MCCLANAHAN, J.H.C.
New York, New York