Scott E. Mollen
Scott E. Mollen ()

Tax Certiorari—Plaintiff Law Firm Is a “Tax Assessment Reduction Service” Within the Meaning of Nassau County Administrative Code and Its Contract Is Unenforceable—Retainer Agreement Can Be Regulated by County Legislature—Claims of Conflict and Field Preemption Based on Law Firm Regulation by Judiciary Law and New York Rules of Professional Conduct Rejected

A plaintiff law firm commenced a breach of contract action, claiming 50 percent of the tax savings based on reductions of the defendant’s residential properties’ assessed value by the Nassau County Assessment Review Commission (ARC), for a four-year period. The claims were based on a written retainer agreement.

The plaintiff asserted that “it is not, as a law firm, a ‘tax assessment reduction service’ within the meaning of Section 21-19.0 et seq. (Title D-9) of the Nassau County Administrative Code (NCAC), and, thus, not subject to the provisions thereof.” The plaintiff initially argued that “Title D-9 is inapplicable because it only…references services that assist in the obtaining of a reduction in assessed valuation from the Nassau County Department of Assessment [Department of Assessment] as opposed to applications made to ARC.” Alternatively, the plaintiff argued that, even if it fell “under the definition of a ‘Tax Assessment Reduction Service’ as defined by NCAC §21-19.1,” the doctrines of conflict and field preemption preclude the Nassau County Legislature from regulating its conduct and the details of its retainer agreement in the way that Title D-9 contemplates.”

The court found that the plaintiff was “a ‘tax assessment reduction service’ within the meaning of Title D-9,” and under the provisions thereof, “the contract sued upon is unenforceable.”

Title D-9, which regulates the conduct of tax assessment reduction services in Nassau County provides:

Tax Assessment Reduction Service, shall mean any person who provides…, for any compensation…, any service to assist the owner…of any dwelling located in Nassau County in obtaining a reduction in the assessed valuation…from the Nassau County Department of Assessment.

The plaintiff argued that it is not subject to Title D-9, since “it sought a reduction in the assessed valuation of the defendant’s property from the [ARC] rather than from the [Dept. of Assessment].” ARC and the Dept. of Assessment are “separate entities.” The plaintiff noted, by way of comparison, that the Suffolk County Administrative Code defines a Tax Assessment Consulting Service as follows:

Any person,…or…entity…which provides…, for any compensation, any service to assist… in obtaining a reduction in the assessed valuation of such premises from the Board of Assessment Review and the town assessing unit….

The court stated that although Suffolk County’s code may embody “a definition of such services that reflects a clearer expression of the legislative intent than its Nassau County counterpart, given the roles and interplay between the [Dept. of Assessment] and [ARC], a more expansive definition is not necessary in order to deem the plaintiff’s activities to fall within the Title D-9 definition.”

ARC reviews and corrects all assessments of real property. However, “it is not the entity that has the actual authority to correct the assessment roll. That power remains with the [Dept. of Assessment.]” Although ARC offers a procedure pursuant to which “ a homeowner may seek a reduction in his or her tax assessment, it is the [Dept. of Assessment] that actually executes the reduction.” Thus, “ARC provides the procedural vehicle by which a reduction must be pursued.” However, “it is [Dept. of Assessment] that has the ultimate authority to make the [reductions] to the assessment roll as directed by the ARC.”

Although the plaintiff sought a review process conducted by ARC, “the plaintiff sought to obtain such reduction ‘from the…[Dept. of Assessment]‘—the only entity with the authority to actually effectuate the reduction by making changes to the assessment roll.” Accordingly, the court held that the plaintiff was “a ‘Tax Assessment Reduction Service’ as defined by NCAC §21-19.1.”

The plaintiff contended that, if it comes within the definition of a “tax assessment reduction service,” then the doctrines of conflict and field preemption “preclude the Nassau County Legislature from regulating its conduct and the details of its retainer agreement in the way that Title D-9 contemplates.” The plaintiff argued that “as a law firm, [it] is regulated by the Judiciary Law and the New York Rules of Professional Conduct.”

The court explained that “[a]lthough the courts may have preempted the field of regulating attorney misconduct, that authority does not extend to all nonlegal aspects of attorney behavior, which can be governed by both civil and criminal law, including regulatory proscriptions….” The court noted that the New York State Court of Appeals had addressed that issue in determining whether “a New York City local law which regulated certain practices for debt collection agencies was preempted by the State’s statutory authority to regulate the conduct of attorneys.” The Court of Appeals held that the exemption did not cover “any attorney-at-law or law firm or part thereof who regularly engages in activities traditionally performed by debt collectors….”

The plaintiff’s retainer described the law firm’s services, as follows:

The Client hereby retains the Firm to serve and file administrative grievance applications…and judicial proceedings against the real estate tax assessments placed on the property…by all taxing jurisdictions…and to initiate and prosecute claims for any resulting tax refund for the tax year 2010/11 and following tax years until all of the proceedings are completed or this authorization is revoked. Any member of the Firm is authorized to execute, verify and file on behalf of the Client such administrative protests and appeals for judicial review as may be appropriate.

After reviewing the work done by the law firm, the court found that the law firm services did “not fall within the practice of law.” The court noted that providing services to taxpayers “to reduce their assessments has become a business model commonly undertaken by numerous non-legal entities or non-lawyers.” “ARC’s own website encourages individuals to seek reductions pro se.” Moreover, “firms like the plaintiff (some of which are not law firms and many of whom employ non-attorneys) file appeals for clients with…ARC, a task which requires no legal acumen, and then, with the leverage of representing thousands of clients, settle the appeals en masse.”

The court opined that if the work included in this case “had involved judicial review outside of the administrative review by…ARC, a more compelling argument might be made that such work comprised the practice of law.” However, the court stated that “the process of filing claims and settling them in the manner the plaintiff does cannot be considered to be the practice of law.” Therefore, the court held that “the doctrines of conflict and field preemption have no application here” and “the plaintiff’s retainer agreement is subject to…Title D-9.”

The court then held that the contract was unenforceable pursuant to the terms of Title D-9. “Section 21-19.2 of the [NCAC] provides that ‘[n]o tax assessment reduction service shall’:

E. Enter into a contract…with an owner unless such contract…shall contain, conspicuously and clearly written:

* * *

(2) A provision permitting the owner, at any time within three days after having entered into such contract…, to…cancel such contract…and receive a full…refund of any fee or deposit already paid by such owner to such tax assessment reduction service. Any provision in a contract…that…attempts to nullify, vacate or in any manner restrict the night of cancellation…shall be…void and unenforceable; and

(3) A provision requiring the…refund by the service…of all fees paid by the owner to the service, other than disbursements already paid by such service on behalf of such owner…if the efforts of the service do not achieve a tax assessment reduction for the owner; and

(4) A notification that an owner is not required to use a tax assessment reduction service in order to file for and/or receive a tax assessment reduction; and

* * *

(6) A provision stating that the service is required by law to make reasonable efforts to fully communicate to the owner the terms of any offer of settlement…to the service in the course of a tax assessment review proceeding, other than a hearing or trial….

(7) A provision stating: “Only: 1. a person named in the records of the Nassau County Clerk as a homeowner; or 2. that person’s authorized agent; or 3. a person who has contracted to buy a home;…, is eligible…to receive a tax assessment reduction and a property tax refund. If you are not in any of these…categories, you will not be able to receive a property tax refund and you should not sign this agreement.

Section 21-19.6, further specifies that “[a]ny…agreement entered into in violation of subdivision E of Section 21-19.2…shall be unenforceable by a tax assessment reduction service as against an owner….” Since the plaintiff’s retainer lacked provisions mandated by 21-19.2(E)(2), (3), (4), (6), or (7), the court held that the retainer is unenforceable and the complaint was dismissed.

Schroder & Strom v. Vazouras, CC-000902-16, NYLJ 1202774632765, at *1 (Dist., NA, Decided Nov. 23, 2016), Meli, J.

Landlord-Tenant—Rent Stabilization—Court Permits Discovery in Rent Overcharge Case to Extend Beyond Four Years—Tenants Asserted a “Colorable Claim of Fraud”

An owner claimed in a summary non-payment proceeding, that rent stabilized tenants owe $8,193.12 in rent arrears based on their written lease. The lease set the rent at $1,365.12 per month. The lease rent was registered by the owner with the NYS Division of Housing and Community Renewal (DHCR), “as a preferential rent with $1,748.27 as the legal regulated rent for the lease term from March 1, 2015 through Feb. 29, 2016.” The tenants denied that “the $1,365.12 they have been charged is a preferential rent.” They asserted a warranty of habitability defense and a counterclaim for rent overcharge (overcharge).

The tenants moved for leave, pursuant to CPLR 408, to conduct discovery with respect to their overcharge defense and counterclaim. Discovery in a summary holdover proceeding is permitted “only by leave of court” and upon a showing of “ample need.”

The factors a court must consider in determining a motion for discovery in a summary proceeding are: (1) whether the party seeking discovery has asserted facts to establish a cause of action or defense; (2) whether there is a need to determine information directly related to the cause of action or defense; (3) whether the requested discovery is closely tailored and is likely to clarify the disputed facts; (4) whether prejudice will result from the granting of an application for discovery; and (5) whether the court can fashion or condition the ordered discovery to alleviate any resulting prejudice.

The tenants asserted that they had been overcharged since they commenced their tenancy, in Mar. 2013. The owner argued that the tenants were not entitled to review the rent history for the apartment beyond “four years from when an overcharge claim is raised.” The owner further argued that “the legal regulated rent registered in 2009 represents the rent negotiated between [owner] and the first rent stabilized tenant after the apartment was exempt for a period of approximately nine years.”

The court explained that the owner’s argument “reflects Rent Stabilization Code [RSC] §2526.1(a)(3)(iii) prior to its amendment in 2014. The current version of the section provides a formula to calculate the amount by which the rent on an apartment may increase after it is vacant or temporarily exempt from rent regulation on the base date.” Prior to the 2014 amendment, “when an apartment was exempt from rent regulation on the base date the legal rent became the rent agreed to by the owner and the first rent stabilized tenant taking occupancy after such an exemption and reserved in a lease or rental agreement.”

Additionally, the court stated that RSC §2520.6(e) provides that the rent charged on the base date, i.e., the date four years prior to the date of the filing of a rent overcharge complaint, RSC §2520.6(f)(1), is the legal rent for an apartment. Moreover, “similar to CPLR 213-a, Administrative Code of the City of New York” (Code) “§26-516(a) provides that the rental history of an apartment prior to the four years preceding the filing of an overcharge complaint should not be examined.” However, the court also observed that “the courts and, more recently, amendments to the [RSC] have created exceptions to CPLR 213-a, [Code] §26-516(a) and the base date rule.” Thus, tenants are permitted “to look beyond the four-year period to look at the rent history of an apartment where a sufficient showing has been made that a landlord has engaged in a fraudulent scheme tainting the amount of rent charged on the base date.”

The court found that the tenants had “sufficiently asserted a colorable claim of fraud by [owner] to improperly remove the apartment from rent stabilization, based on the irregularities in the registration history of the apartment, to entitle [tenants] to conduct the closely tailored disclosure they have requested.” The court cited “contradictory registrations of the apartment after the alleged temporary exclusion of the apartment from rent regulation, stating the apartment was permanently exempt due to ‘high rent vacancy’ in 2006 and an exempt apartment for which a registration was not required in 2007 and 2008 followed by registrations stating the apartment was rent stabilized with a preferential rent….” The court held that the tenants had “raise[d] a colorable claim of fraud to de-regulate the apartment and form the basis for Respondents to challenge” whether they were being charged an unlawful rent.

Additionally, the court stated that “for purposes of establishing the existence or terms and conditions of a preferential rent alleged to have been created in their own tenancy as well as their predecessors’ tenancy, [tenants] are not precluded from reviewing the rental history of the apartment prior to the four-year period preceding the filing of their rent overcharge defense and counterclaim. Rent Stabilization Code §2526.1(a)(2)(viii).”

The court also held that the tenants’ request for “leases and lease riders, rent records, submissions to DHCR,” and “documentation of rent increases” was “closely tailored to enable [tenants] to obtain information related to their overcharge defense and counterclaim.” The court further opined that the owner should not suffer prejudice because of a delay in the trial, since the owner may “control how quickly” the documentation is provided and the tenants had stipulated that they would pay use and occupancy at an agreed upon amount. Thus, the court granted the tenant’s motion for leave to conduct discovery.

Rios v. Rosado, 62814/16, NYLJ 1202773325231, at *1 (Civ., KI, Decided Nov. 6, 2016), Baum, J.