NEW YORK CITY-Seven months after the New York Court of Appeals held that the owners of the massive Stuyvesant Town and Peter Cooper Village complex had illegally deregulated thousands of rent-stabilized apartments while receiving tax abatements, questions about the impact of the ruling remain. While many attorneys predicted that the suit would spell doom for the real estate industry and spawn a wave of litigation, only a handful of tenant and class action suits have been filed.

“In the legal world, we are still in the early innings,” says Mitchell Posilkin, general counsel for the Rent Stabilization Association of New York. He says the effect of the ruling, Roberts v. Tishman Speyer Properties, depends in part on how the trial courts resolve the issues left open by the Court of Appeals.

According to Posilkin, the biggest issue by far is whether to apply Roberts retroactively or prospectively. In his view, owners and lenders should not be punished for relying in good faith on a 1996 advisory letter issued by the New York State Division of Housing and Community Renewal, which concluded that owners could seek luxury decontrol of housing units receiving J-51 tax abatements, so long as the receipt of the benefits was not the only reason the units were subject to rent regulation.

While the court in Roberts disagreed with the agency’s opinion, it did not address retroactivity. That issue is being litigated before Supreme Court Justice Richard Lowe, who is overseeing the Roberts cases in the trial court.

In February, the former owners of the Stuy-Town complex, Metropolitan Tower Life Insurance Co. and Metropolitan Insurance and Annuity Co., filed a motion to dismiss the plaintiffs’ amended complaint in Roberts. They contend in the suit before Justice Lowe that “MetLife, like other building owners at the time, acted in reliance on unchallenged interpretations” provided by DHCR. “Applying retroactive liability on the basis of the Court of Appeals’ unexpected change in the law would penalize MetLife without fair notice, give Plaintiffs a windfall, and do nothing to serve the Rent Stabilization Law’s purpose of preserving the supply of affordable housing in New York City,” they maintained in court papers filed by attorneys from Greenberg Traurig and Debevoise & Plimpton.

Alexander Schmidt of Wolf Haldenstein Adler Freeman & Herz, who represents the Stuy-Town plaintiffs, countered that granting MetLife’s motion would “eviscerate” the Court of Appeals’ ruling and provide a “disincentive” for filing similar suits in the future by “depriving litigants of the fruits of their victories.” The parties are slated to argue the issue before Justice Lowe early next month.

Tenant attorney Seth Miller of Collins, Dobkin & Miller says in an interview that the landlords’ retroactivity argument is weak. “The J-51 regulations were on the books the entire time. They were not repealed. Anybody who relied on something that contradicted those regulations…was taking a chance,” says Miller, who filed an amicus in the Roberts appeal.

In addition to retroactivity, several other questions were raised by Roberts, according to William J. Gribben of Himmelstein McConnell Gribben Donoghue & Joseph. Gribben says the unresolved issues include whether tenants alleging overcharges will be subject to a four-year statute of limitations; whether the lack of a J-51 rider prevents landlords from deregulating a unit even after the J-51 benefit period ends; whether owners of apartments subject to rent regulation that were not registered with DHCR can obtain retroactive rent increases; what happens to tenants who left a building before or after a tax abatement has expired; and whether tenants can recover treble damages for pre-Roberts overcharges.

Some of these issues could be decided in the trial courts, where a handful of class actions have been filed in recent months. The most high-profile of these suits was brought by a group of 10 tenants at London Terrace Gardens in Dugan v. London Terrace, L.P.,, who claim owners of the Chelsea apartment complex have began illegally deregulating units since 1993. Tenants from Lenox Terrace in Harlem (Downing v. First Lenox Terrace) and the Claremont House on the Upper East Side (Gerard v. Claremont York Associates LLC) also have filed actions against their landlords in the wake of Roberts.

And last year, Bronx Supreme Court Justice John A. Barone found that Roberts was “controlling” when he ruled in favor of a group of 12 tenants at 1600 Sedgewick Ave. in the South Bronx. The tenants had accused the landlord, Riverview Redevelopment Co., L.P., of illegally hiking rents while continuing to receive J-51 tax breaks. (Ade v. Riverview Development Co. L.P.)

Cases also have been brought by individuals asserting rent overcharges. Tenant attorney James B. Fishman of Fishman & Mallone said that he has a couple of overcharge actions pending before DHCR. However, Fishman says in an interview he has not seen “an explosion of litigation” following Roberts.

“I think there’s a lot of confusion out there. A lot of people don’t realize that they are J-51 tenants,” Fishman says, adding that he believed the issue would “shake itself” out over time.

Sherwin Belkin of Belkin Burden Wenig & Goldman agrees. “Before embarking on litigation, tenants would like to know whether the [Roberts] decision applies to them,” he says. Belkin, who represented the landlords in Roberts, said that one of the pending class actions could provide clarity in this area. But David Hershey-Webb of Himmelstein McConnell, whose firm, along with Emery Celli Brinckerhoff & Abady, is representing the plaintiffs in London Terrace, Lenox Hill and Claremont, says many tenants simply are “reticent to assert their rights.” He adds, “Someone who is comfortable paying an illegally high rent may not understand what it means to have the right of renewal guaranteed. It’s a head thing.”

Harvey Epstein of the Urban Justice Center faults DHCR for failing to inform tenants that their units were illegally deregulated. The agency said it would wait until after Roberts to put out a policy statement, Epstein says. Seven months later, he claims that DHCR has ignored requests by the UJC and elected officials to issue a statement or notify tenants that they are now subject to rent stabilization. DHCR knows which buildings have received J-51 benefits and which units have been deregulated, says Epstein, who represented tenants in the Riverview Development case in the Bronx.

Scott E. Mollen of Herrick, Feinstein agrees that “the industry and tenants need to hear DHCR’s view,” although he did not criticize the agency for failing to act. “Even though the Court of Appeals’ decision declined to defer to DHCR’s interpretation, as a general rule in this area, courts care very much about hearing what the agency has to say,” says Mollen, a Law Journal columnist who is not involved in the litigation.

According to a DHCR spokeswoman, the agency has “reached out to tenant organizations and posted information on [its] Web site encouraging any tenant who believes they have been overcharged to file a complaint with DHCR.” She said that the J-51 program is run by the New York City Department of Housing Preservation and Development, and that DHCR “does not have access to which buildings receive J-51.” However, she says the agency estimates that some 40,000 units in about 4,000 buildings are impacted by Roberts and has received “approximately 200 overcharge complaints related to J-51.”

Meanwhile, Sen. Pedro Espada Jr., D-Bronx, has introduced legislation that would allow owners to return J-51 tax benefits and to waive future benefits. In exchange, their units would be eligible for luxury decontrol. The monies from the bill, S.6811, would be used to freeze rents for tenants who earn less than $45,000 a year and spend more than one-third of their income on rent.

If the questions that remain unsettled by the Court of Appeals are not resolved by the Legislature, “you are going to have 10 years of litigation” to resolve all the factual variants left up in the air by the Roberts ruling, says Harold Shultz of the Citizens Housing and Planning Council.

But no matter what the courts decide, tenant attorneys insist that the consequences will not be as dire as landlords predicted. “It is insane to think that extending rent regulation to tenants who pay over $2,000 is going to make the sky fall,” says Miller, the tenants’ attorney at Collins Dobkin. “At worst what will happen is that those people who are overleveraged are going to get what’s coming to them.”

Noeleen G. Walder can be reached at [email protected].