The evolved rent-control landlord: Part 1, the complaint
Rent control, as I’ve posted on many occasions, survives in spite of the fact that there is no economic or public-policy case for it; rather, once rent control is enacted as a short-term political fix, it embeds itself into the society, with ever-more-fierce defenders among its ever-less-market-connected beneficiaries.
I’m defending my right to be here
Meanwhile, even as rent control is slowly ruining properties, and continuously distorting markets (among other things, by effectively choking off new rental development), it is wreaking a corresponding evolutionary change among property owners, leading to an end state of landlords like the Pinnacle Group Corp. of New York City, that was recently hit by a massive pro-bono lawsuit, as reported by the New York Times:
A group of tenants filed a federal racketeering lawsuit against one of the city’s fastest-growing residential landlords yesterday [
The suit, filed in Federal District Court in Manhattan, contends that the landlord, the Pinnacle Group, and its owner, Joel Weiner [sic: complaint says Wiener -- Ed.], systematically evicted tenants to raise rents in apartments throughout the city, but primarily in units concentrated in Harlem, Washington Heights and the Bronx.
I’ve already posted about the improvement and gentrification in Harlem, so it would be no surprise to find that rents are rising, creating investment opportunities.
Because Pinnacle owns several thousand apartment units in those areas — most of them bought during the past four years — tenants and their lawyers said the company’s actions constituted an attack on rent-regulated housing in some of Manhattan’s few remaining working-class neighborhoods.
As a law firm, Jenner & Block are no slouches, and they took this investigation very seriously, as their press release proudly notes:
According to Mr. Levy, Jenner & Block lawyers and professionals have spent more than 1,500 hours without charge during the past year investigating the Pinnacle Group and Joel Wiener, interviewing tenants and preparing the complaint that was filed in federal court.
Judging from its complete absence on the Web, Pinnacle (no relation to the Seattle-based management company) is somewhere between modest and secretive.
Over the last few years, Pinnacle has attracted numerous complaints.
Pinnacle has acknowledged sending out some 5,000 letters, called dispossess notices, to tenants in about a quarter of its 21,000 units during a 29-month period from 2004 through 2006, citing:
1. Non-payment of rent
2. Invalid line of succession for occupancy
3. Other violations
At this point, a reader from Mars would know this story could only have arisen in
In a statement yesterday responding to the lawsuit, Kenneth K. Fisher, a lawyer and former city councilman who is representing Pinnacle, said that the company had not violated any laws.
“Pinnacle is proud of its record of providing safe and affordable housing for thousands of
Trial by media! A worthy twenty-first century tradition. Indeed, Jenner & Block’s press release goes to some lengths to wrap the complaint in the mantle of public righteousness:
Public Advocate for the City of New York Betsy Gotbaum and Manhattan Borough President Scott Stringer joined to support the community’s efforts to seek, among other forms of relief, payments for overcharged rents, immediate injunctive relief to restrain unlawful behavior and the creation of an independent body to ensure lawful management of buildings.
Public Advocate Gotbaum is against overcharged rents and unlawful behavior
I’m really curious to know just what role would be played by another New York City agency, given that the city is already festooned with regulatory bodies including HPD, DHCR, and the rent control board (to say nothing of the building department), all of whom already have jurisdiction — to say nothing of the building department, and of course the district attorney:
Last year, both the state attorney general’s office and the
In December, Pinnacle reached a settlement with the state in which it admitted no wrongdoing but agreed to hire an auditor to analyze its rents. The district attorney’s investigation is continuing, officials said.
Borough President Stringer likes independent bodies
Pinnacle and Wiener are financed in part by a six-billion-dollar real estate investment firm, the Praedium Group, to undertake a self-described “value enhancement” business strategy, an apparent policy of harassing tenants to the point of eliminating rent-regulated units.
Only in
Included among the list of harassing techniques allegedly used by Pinnacle and Wiener are:
1. Seeking to collect illegal rents based on fraudulent claims of individual apartment improvements and major capital improvements.
2. Failing to make necessary and reasonable repairs to address housing maintenance code violations.
3. Commencing unfounded court proceedings to challenge tenants’ succession rights.
4. Unjustifiably refusing to accept tenants’ rent checks and then claiming non-payment.
5. Directing and encouraging superintendents of its buildings to make unacceptable and shoddy repairs or make false promises to conduct repairs.
These particular action allegations are made broadly in the press release and complaint, but buttressed with numerous very specific factual allegations from a double handful of representative residents.
We’re building our case with factual allegations
If true — and the full complaint cites many examples — this is scurrilous behavior, using money power, information power, and persistence to lever or winkle residents out of their rights. Perhaps aware that anecdotes by themselves do not make a pattern, the press release adds:
In fact, regarding the shoddy repairs, the City’s Department of Housing Preservation and Development (HPD) website currently lists multiple apartments under Pinnacle management with a slew of long uncorrected violations, including multiple “impairing” rent and hazardous violations such as inadequate fire exits, lead-based paint, and lack of heat and hot water. Many of these hazardous “Class C” violations have not been addressed for years, despite the fact that the Housing Maintenance Code requires owners to correct Class C violations within 24 hours.
Since the only thing on record now is the lawsuit, for the time being I’ll accept its factual allegations arguendo, even though that does a disservice to Mr. Wiener and his company; we humble bloggers have to work with the record, because (as my sf writer friend Alex wryly commented), since it’s on the Internet, it must be true.
The lawsuit — filed by several individual Pinnacle tenants along with a tenants’ group, Buyers and Renters United to Save Harlem, made up largely of Pinnacle tenants — is unusual in that it accuses Pinnacle of engaging in racketeering, including using the federal postal system and interstate wires as “part of an ongoing scheme to increase rents unlawfully, to receive illegal rents and ultimately, to free their properties from New York’s rent control and rent stabilization requirements.”
I had it made until that RICO rat …
Using the RICO statute (Racketeer Influenced and Corrupt Organizations Act) is now de rigueur in escalating the stakes in civil litigation:
In 1970, Congress passed the Racketeer Influenced and Corrupt Organizations (RICO) Act, Title 18, United States Code, Sections 1961-1968. At the time, Congress’ goal was to eliminate the ill-affects of organized crime on the nation’s economy. To put it bluntly, RICO was intended to destroy the Mafia.
Who you callin’ Mafia?
In the 1980’s, however, civil lawyers noticed section 1964(c) of the RICO Act, which allows civil claims to be brought by any person injured in their business or property by reason of a RICO violation. Any person who succeeded in establishing a civil RICO claim would automatically receive judgment in the amount of three times their actual damages and would be awarded their costs and attorneys’ fees. The financial windfall available under RICO inspired the creativity of lawyers across the nation, and by the late 1980’s, RICO was a (if not the most) commonly asserted claim in federal court. Everyone was trying to depict civil claims, such as common law fraud, product defect, and breach of contract as criminal wrongdoing, which would in turn enable the filing of a civil RICO action.
RICO’s broad application was the result of Congress’ inclusion of mail and wire fraud as two crimes upon which a RICO claim could be brought. Given the breadth of activities that had historically been criminally prosecuted under the mail and wire fraud statutes, it was not difficult for creative civil attorneys to depict practically any wrongdoing as mail or wire fraud.
Precisely this line of argumentation is prominent in the Jenner & Block lawsuit.
During the 1990’s, the federal courts, guided by the United States Supreme Court, engaged in a concerted effort to limit the scope of RICO in the civil context. As a result of this effort, civil litigants must jump many hurdles and avoid many pitfalls before they can expect the financial windfall available under RICO, and RICO has become one of the most complicated and unpredictable areas of the law.
Today, RICO is almost never applied to the Mafia. Instead, it is applied to individuals, businesses, political protest groups, and terrorist organizations. In short, a RICO claim can arise in almost any context.
As Jenner & Block puts it:
Additionally, Pinnacle’s ongoing pattern of fraudulent practices is alleged to violate the Federal Racketeering Influenced and Corrupt Organizations Act (RICO), which makes it unlawful to conduct affairs through a pattern of racketeering activity.
And believe me, you wanna conduct unlawful affairs, you need a pattern of activity
Regarding the context of RICO, the Times shows itself ignorant and credulous:
Racketeering allegations are more commonly used by the federal government to prosecute organized crime figures and drug traffickers. [Sorry, wrong answer, but thanks for playing our game anyway! -- Ed.[
Dese are de guys we wanna get
The suit also contends that Pinnacle has intimidated tenants through threatened evictions and claimed to make building repairs and improvements that had never been made. The company has acknowledged in the past that it improperly passed on costs of repairs and apartment upgrades to new tenants …
New York again; under New York City rent control, landlords are entitled to a monthly rent increase equal to 1/40th of the cost of certain specified building repairs or improvements. The complaint (click here for pdf) makes interesting reading for the pattern of its allegations, of which a representative relevant one is:
76. […] Defendants represented to the Charrons that they could have charged as much as $2,500 based on approximately $20,000 of renovations the Defendants had allegedly undertaken in the unit.
77. When the Charrons investigated the alleged renovations that Defendants purportedly made, they discovered that Defendants had submitted fraudulent receipts to DHCR for ‘renovations’ to justify a fraudulent rent overcharge. These receipts included, among other things, 160 light bulbs, 75 pounds of grout, 130 gallons of paint, a $198 nail gun, a $24 drain cleaning device, and various other items listed as installed but not used.
The Times’s article offers the owners’ weak riposte (recall that they were served the lawsuit only after the press release went out):
… but said they were isolated mistakes.
Jenner & Block’s press release wraps itself in the mantle of tenant protection:
The lawsuit, filed on a pro bono basis by Jenner & Block on July 11, constitutes a new fight against corporate slumlording and comes at a time when rising property and rental prices have made it increasingly difficult for middle class families to find affordable housing in the city.
There’s an old saw in sales, once they say yes, stop talking. Sometimes a few extra words turn Yes into No.
You just said Yes
As I was reading the article, complaint, and press release at lunch a couple of weeks ago, I found myself wholly onboard with the lawsuit — particularly the very specific allegations of individual tenants being screwed by individual underhanded, nefarious, and deceitful landlord actions. Then I hit those two boldfaced words, and found myself rethinking my entire view, because:
[Continued tomorrow in Part 2.]
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