11-3302-cv(L)
United States v. Glenn Gardens Assocs., L.P., et al.

                                      UNITED STATES COURT OF APPEALS
                                         FOR THE SECOND CIRCUIT

                                            SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order
filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate
Procedure 32.1 and this court’s Local Rule 32.1.1. When citing a summary order in a
document filed with this court, a party must cite either the Federal Appendix or an
electronic database (with the notation “summary order”). A party citing a summary order
must serve a copy of it on any party not represented by counsel.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 21st day of August, two thousand thirteen.

PRESENT:

           JOSÉ A. CABRANES,
           RICHARD C. WESLEY,
           J. CLIFFORD WALLACE,*
                                Circuit Judges.
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UNITED STATES OF AMERICA,

                     Plaintiff-Appellant,

                               -v.-                                                            Nos. 11-3302-cv(L),
                                                                                               11-3315-cv(CON)
GLENN GARDENS ASSOCIATES, L.P., WB/STELLAR IP OWNER,
L.L.C., INDEPENDENCE PLAZA ASSOCIATES, L.L.C.,
INDEPENDENCE PLAZA, L.P., STELLAR MANAGEMENT,
LAURENCE GLUCK, and CITY OF NEW YORK,

                      Defendants-Appellees.†
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     * The Honorable J. Clifford Wallace, of the United States Court of Appeals for the Ninth Circuit, sitting by

designation.
    † The Clerk of Court is directed to amend the official caption in this case to conform to the listing of the parties

above.



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FOR PLAINTIFF-APPELLANT:                                       JEFFREY S. OESTERICHER, Assistant United
                                                               States Attorney (Sarah S. Normand, Assistant
                                                               United States Attorney, on the brief), for Preet
                                                               Bharara, United States Attorney, United States
                                                               Attorney’s Office for the Southern District of
                                                               New York, New York, NY.

FOR DEFENDANTS-APPELLEES W/B
STELLAR IP OWNER, L.L.C,
INDEPENDENCE PLAZA ASSOCIATES,
L.L.C., INDEPENDENCE PLAZA, L.P.,
AND LAURENCE GLUCK:                                            STEPHEN B. MEISTER (Stacey M. Ashby, on the
                                                               brief), Meister Seelig & Fein LLP, New York,
                                                               NY.

FOR DEFENDANT-APPELLEE GLENN
GARDENS:                                                       PETER C. NEGER (Gillian I. Biron, on the brief),
                                                               Bingham McCutchen LLP, New York, NY.



       Appeal from the May 12, 2011 amended judgment of the United States District Court for
the Southern District of New York (Shira A. Scheindlin, Judge).

     UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the May 12, 2011 judgment of the District Court be AFFIRMED.

        Plaintiff the United States of America appeals from an order of the District Court granting
summary judgment to the defendants, who are owners of two large rental apartment buildings in
Manhattan, Glenn Gardens and Independence Plaza North (“IPN”).1 The United States seeks
principally to recover federal housing assistance payments which were made to offset rent increases
at Glenn Gardens and IPN that the United States now claims were illegal. We review an order
granting summary judgment de novo and “resolv[e] all ambiguities and draw[ ] all permissible factual
inferences in favor of the party against whom summary judgment is sought.” Burg v. Gosselin, 591
F.3d 95, 97 (2d Cir. 2010) (quoting Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009)). We assume
familiarity with the underlying facts and procedural history of this case.




    1 For ease of comprehension, we refer to the various defendants by the buildings they own—i.e., as either “Glenn

Gardens” or “IPN.”



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                                                   BACKGROUND

        Both Glenn Gardens and IPN were built in the mid-1970’s under what is commonly known
as the Mitchell-Lama Housing Program (“Mitchell-Lama”) and less commonly known as Article II
of New York’s Private Housing Finance Law (“PHFL”). Mitchell-Lama promoted construction of
so-called affordable housing by providing long-term, low-interest government mortgage loans to
developers on the condition that the resulting development be subject to rent regulation. An owner
of such a building may opt out of Mitchell-Lama—and its rent regulation requirement—after
twenty years by paying off the mortgage.

        In the late 1990s, both Glenn Gardens and IPN began receiving tax benefits under New
York City’s “J-51” program. Under that program, property owners may receive multi-year tax
exemptions or abatements for completing certain major building improvement projects. See N.Y.C.
Admin. Code § 11-243. In order for a rental building like Glenn Gardens or IPN to be eligible for J-
51 benefits, it must either be or become subject to rent regulation. See 28 Rules of New York City
(“RCNY”) § 5-03(f)(1). Specifically, the building must be subject to rent regulation pursuant to (1)
New York City’s Rent and Rehabilitation Law, N.Y.C. Admin. Code § 26-401, et seq.; (2) New York
City’s Rent Stabilization Law of 1969 (“RSL”), id. § 26-501, et seq.; (3) the PHFL; (4) “any federal law
providing for rent supervision or regulation by [the U.S. Department of Housing and Urban
Development (“HUD”)] or any other federal agency”; or (5) the Emergency Tenant Protection Act
of 1974. 28 RCNY § 5-03(f)(1).2 Glenn Gardens and IPN qualified for J-51 benefits because they
were, at that time, in Mitchell-Lama and therefore subject to rent regulation under the PHFL.

        On June 27, 2003, and June 28, 2004, Glenn Gardens and IPN, respectively, paid off their
mortgages and exited the Mitchell-Lama program. Prior to their departures from Mitchell-Lama,
Glenn Gardens and IPN each sent notification to New York City’s Department of Finance
(“DOF”), which administers the J-51 program, explaining that the particular building would no
longer be subject to rent regulation under the PHFL and therefore no longer be entitled to J-51 tax
benefits. Nonetheless, DOF simply failed to terminate Glenn Gardens’ or IPN’s benefits.

    2   In full, 28 RCNY § 5-03(f)(1) provides:
    Rent regulatory requirements. (1) Rent regulation generally mandatory. In order to be eligible to receive tax
    benefits under the Act and for at least so long as a building is receiving the benefits of the Act, except for
    dwelling units which are exempt from such requirement pursuant to paragraph (2) below, all dwelling units in
    buildings or structures converted, altered or improved shall be subject to rent regulation pursuant to:
           (i) the City Rent and Rehabilitation Law (§ 26-401 et seq. of the Administrative Code); or
           (ii) the Rent Stabilization Law of 1969 (§ 26-501 et seq. of the Administrative Code); or
           (iii) the Private Housing Finance Law; or
           (iv) any federal law providing for rent supervision or regulation by HUD or any other federal agency; or
           (v) the Emergency Tenant Protection Act of 1974.



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According to both Glenn Gardens and IPN, they only learned of the oversight sometime later, and
immediately contacted the City of New York to alert it to the mistake. See Special App’x 11. The
New York City Department Housing Preservation and Development agreed to retroactively
terminate Glenn Gardens and IPN from the J-51 program as of the date of their respective formal
exits from Mitchell-Lama.

        Naturally, after leaving Mitchell-Lama, Glenn Gardens and IPN raised rents—which,
perhaps unsurprisingly, led to the application of yet another government-sponsored housing
program. Under Section 8 of the Housing Act of 1937, commonly known simply as “Section 8,”
the federal government provides funds to local housing authorities, which then subsidize rental
payments for qualifying tenants of privately-owned buildings. See 42 U.S.C. § 1437f(o)(1)(A). In
particular, qualifying tenants of a building which exits a rent regulation program may receive
“enhanced vouchers”—essentially, payments to help offset the increase in rent. See id. § 1437f(t). A
number of families living in Glenn Gardens or IPN received Section 8 assistance after the buildings
exited Mitchell Lama.

        The United States would now like to recover certain of those Section 8 payments, which it
believes were made in error. The United States contends that Glenn Gardens and IPN remained
subject to rent regulation so long as they received J-51 benefits and, therefore, the buildings should
not have charged market rents immediately after their exit from Mitchell-Lama (or before their
retroactive formal exits, which were not accomplished until March of 2008 for Glenn Gardens and
March of 2006 for IPN). Accordingly, the United States argues that Glenn Gardens and IPN
should return the value of the enhanced vouchers.

        Glenn Gardens and IPN argue that termination of their J-51 benefits was mandatory upon
withdrawal from Mitchell-Lama, and, hence, that withdrawal from Mitchell-Lama immediately
removed them, as a matter of law, from rent regulation. The District Court granted summary
judgment to Glenn Gardens and IPN, concluding that the buildings were no longer subject to rent
regulation upon their exit from Mitchell-Lama. The United States now appeals.

                                           DISCUSSION

        As explained above, this case involves the interplay between several local and federal housing
rules and statutes that are complicated when taken alone, and positively labyrinthine when taken
together. The United States relies chiefly on the Rent Stabilization Law itself, which provides that
rent stabilization shall apply to “[d]welling units in a building or structure receiving the benefits of
section 11-243 [formerly J-51] or section 11-244 of the code . . . .” RSL § 26-504(c). According to
the United States, all buildings that receive J-51 benefits are therefore subject to the Rent
Stabilization Law, even if they are also subject to the PHFL. Under the United States’ theory of


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dual regulation, a building regulated by the PHFL receiving J-51 benefits is subject only to the rules
of the PHFL unless and until it leaves Mitchell-Lama, in which case the Rent Stabilization Law takes
over.

         Glenn Gardens and IPN rely principally on New York City’s rules governing the J-51
program. Under 28 RCNY § 5-07(f)(3), which was in effect at the time relevant to this litigation,3
“[t]he Commissioner of the Department of Finance or the Commissioner of the Department of
Housing Preservation and Development shall withdraw tax exemption and tax abatement granted to a
building pursuant to the Act upon the happening of . . . [t]he building ceas[ing] to be subject to the
rent regulatory provisions of law set forth in § 5-03(f)(1) . . . .” (emphasis supplied). Glenn Gardens
and IPN interpret this provision as mandating withdrawal from J-51 benefits as soon as the building
ceases to be part of whatever rent regulation scheme had rendered it eligible for the J-51 program in
the first place. In other words, a building that is subject to the PHFL may join the J-51 program
without being subject to the Rent Stabilization Law, and may continue to receive J-51 benefits until it
is no longer subject to the PHFL.4

        The question raised in this appeal, therefore, is whether receipt of J-51 benefits places a
building under the Rent Stabilization Law, or whether a building simply remains eligible for J-51
benefits so long as it is under the ambit of one of the enumerated rent regulation schemes. When,
as here, “we are faced with a question of New York law that is decisive but unsettled, we may
‘predict’ what the state’s law is, consulting any rulings of its intermediate appellate courts and trial
courts, or we may certify the question to the New York Court of Appeals.” Windsor v. United States,
699 F.3d 169, 177 (2d Cir. 2012).

         Fortunately, we have as guidance a recent decision of the First Department of the Appellate
Division of New York’s principal trial court that is precisely on point. See C.I.R. v. Bosch’s Estate, 387
U.S. 456, 465 (1967) (“[A]n intermediate appellate state court is a datum for ascertaining state law
which is not to be disregarded by a federal court unless it is convinced by other persuasive data that
the highest court of the state would decide otherwise.” (internal quotation marks and alteration
omitted)); see also Georgitsi Realty, LLC v. Penn-Star Ins. Co., 702 F.3d 152, 155 (2d Cir. 2012) (“Because
the New York Court of Appeals has yet to resolve the issue before us, we turn to the decisions of
the trial and intermediate appellate courts of New York state.”). Indeed, the litigation before us now
is not the only one spawned by the withdrawal of Glenn Gardens and IPN from Mitchell-Lama. In
2005, tenants who entered market-rate leases at IPN brought suit in state court, making the same

     3 Section 5-07(f) was eliminated from New York City’s Administrative Code in April 2010. See Denza v. Independence

Plaza Assocs., LLC, 941 N.Y.S.2d 130, 133 n.1 (1st Dep’t 2012).
    4 RSL § 26-504(c), which applies the Rent Stabilization Law to buildings joining the J-51 program would therefore
only apply to buildings that are not otherwise rent-regulated but wish to become rent-regulated in exchange for a tax
exemption or abatement. See Denza, 95 N.Y.S.2d at 134.



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claim that the United States does here—namely, that IPN’s receipt of J-51 benefits after its
withdrawal from Mitchell-Lama subjected it to the Rent Stabilization Law. See Denza v. Independence
Plaza Assocs., LLC, 941 N.Y.S.2d 130, 132 (1st Dep’t 2012). The trial court granted summary
judgment to the tenants, but the First Department reversed, holding:

         IPN’s continued receipt of J-51 benefits after it exited the Mitchell-Lama program
         was merely the erroneous result of DOF’s failure to adjust IPN’s tax liability
         following its receipt of notice that the property would be restored to full taxpaying
         status as of June 28, 2004. That error did not create rent stabilized status for a
         development that was not otherwise subject to the Rent Stabilization Law.

Id. at 134. The Court of Appeals subsequently denied leave to appeal. Denza v. Independence Plaza
Assocs., LLC, 19 N.Y.3d 816 (2012).

        We see no reason to belabor the point. We have little trouble “predicting” that the First
Department’s conclusion would be the law of the state.5 Nor are we persuaded by the United States’
claim that we should certify the question—which, again, the Court of Appeals already declined to
hear. We conclude that neither Glenn Gardens nor IPN became subject to the Rent Stabilization
Law upon exit from Mitchell-Lama.

        The United States contends that, even if the Rent Stabilization Law does not apply, Glenn
Gardens and IPN were not permitted to immediately exit rent regulation because the J-51 rules
require that each “unit shall remain subject to rent regulation until the occurrence of the first
vacancy after tax benefits are no longer being received.” 28 RCNY § 5-03(f)(3)(i)(A). As the
District Court pointed out, however, the statute that authorizes this rule only permits local laws or
ordinances to limit deregulation for “dwelling unit[s] subject to rent regulation . . . as a result of
receiving a [J-51] tax exemption or abatement.” N.Y. Real Property Tax Law § 489(7)(b)(2)
(emphasis supplied). Accordingly, the J-51 deregulation provision relied upon by the United States
cannot apply to Glenn Gardens or IPN, neither of which were rent-regulated as a result of receiving a
J-51 tax abatement (since they were both rent-regulated under Mitchell-Lama).6 The District Court
therefore properly granted summary judgment to Glenn Gardens and IPN.


     5 We note that in its opening brief, which was written before the First Department reversed the state trial court, the

United States argued vigorously that we must give full faith and credit to the ruling of the state court. Presumably, that
logic holds true even though the state court ruling is no longer favorable to the government.
     6 The United States contends that § 489’s limitation on the J-51 deregulation rule cannot apply to Glenn Gardens

because § 489(7)(b)(2) applies to “any dwelling unit subject to rent regulation on or before [June 18, 1985,] as a result of
receiving a tax exemption or abatement,” and Glenn Gardens and IPN began receiving J-51 benefits after that date. But
that date appears to restrict the type of apartments that can be subject to the J-51 deregulation rule—not, as the United
States suggests, to expand the application of the deregulation rule to all buildings that joined the J-51 program after June
18, 1985. See Walsh v. Wusinich, 821 N.Y.S.2d 182, 183 (1st Dep’t 2006).



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                                        CONCLUSION

       We have reviewed the record and the parties’ arguments on appeal. For the reasons set out
above, we AFFIRM the May 12, 2011 judgment of the District Court.

                                             FOR THE COURT,
                                             Catherine O’Hagan Wolfe, Clerk of Court




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