BURROWS v. 75 25 153RD STREET LLC (2025)

Upon remittitur from the Court of Appeals (44 N.Y.3d 74, 241 N.Y.S.3d 111, 267 N.E.3d 1180 [2025]), Order, Supreme Court, New York County (Shawn T. Kelly, J.), entered on or about November 19, 2021, which denied defendant's motion to dismiss the complaint, unanimously affirmed as modified, without costs.  Appeal from order, same court and Justice, entered on or about May 6, 2022, which effectively granted defendant's motion for leave to reargue, and, upon reargument, adhered to its original decision, unanimously affirmed, without costs.

This Court previously found that plaintiffs’ putative class action complaint for rent overcharges failed to allege a fraudulent scheme to remove the apartments from rent stabilization protections “because neither plaintiffs nor their predecessors in interest could have reasonably relied upon the inflated legal regulated rents on the registration statements” (Burrows v. 75–25 153rd St., LLC, 215 A.D.3d 105, 109, 189 N.Y.S.3d 1 [1st Dept. 2023], affd as mod, 44 N.Y.3d 74, 241 N.Y.S.3d 111, 267 N.E.3d 1180 [2025]).  This Court concluded that because plaintiffs’ claims were “based upon inflated figures for legal regulated rents that were registered far more than four years before the commencement of this action in 2020, their claims are time-barred” (id. at 112, 189 N.Y.S.3d 1).  We also dismissed plaintiff Sam Waller's claims arising under his rent concession rider, which was affirmed by the Court of Appeals (44 N.Y.3d at 84, 241 N.Y.S.3d 111, 267 N.E.3d 1180) and is not disturbed on remittitur.  As relevant here, the Court of Appeals modified this Court's order to the extent of finding “[r]easonable reliance by a tenant on an owner's fraudulent representation of a regulated unit's rent or status is not required for the fraud exception to apply in a rent overcharge action” (44 N.Y.3d at 80, 241 N.Y.S.3d 111, 267 N.E.3d 1180) and remitted the case to this Court for further proceedings consistent with the opinion (id. at 85, 241 N.Y.S.3d 111, 267 N.E.3d 1180).

Following the entry of this Court's order, the Legislature enacted amendments to the Rent Stabilization Law and Code relating to establishing fraud in the context of the rent regulatory scheme, which apply to all claims pending as of December 22, 2023, including the claims here (L 2023, ch 760;  L 2024, ch 95;  Gomes v. Vermyck, LLC, 238 A.D.3d 26, 228 N.Y.S.3d 208 [2d Dept. 2025]).  The Court of Appeals declined to address the extent to which these amendments “differ[ ] from our common law rule, and, if there is any difference, the impact or applicability of that legislation” (44 N.Y.3d at 84 n. 1, 241 N.Y.S.3d 111, 267 N.E.3d 1180).

Based on the foregoing, we find that plaintiffs have adequately pleaded facts, which, if established, could support a finding of fraud by alleging that defendant and its predecessor's use of preferential rents in contravention of Rent Stabilization Code (9 NYCRR) § 2521.1(g) was a stratagem employed to increase the rents above the amounts permitted by statute.  Viewed in the totality of the circumstances, an owner registering an arbitrary and fictitious first rent that was not actually charged and paid as the legal regulated rent, in order to avail itself of excessive rent increases, would constitute a fraud against the regulatory system itself if established (see e.g. Matter of Grimm v. State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 N.Y.3d 358, 362, 912 N.Y.S.2d 491, 938 N.E.2d 924 [2010] [finding the “base date rent may not be used as a basis for calculating subsequent regulated rent if fraud is indeed present”]).  Thus, defendant's bare assertion that plaintiffs were not overcharged did not meet their burden on a CPLR 3211 motion (see Burrows, 44 N.Y.3d at 83, 241 N.Y.S.3d 111, 267 N.E.3d 1180 [“On a motion to dismiss, the complaint must be construed in the light most favorable to plaintiff and all factual allegations must be accepted as true”]).

Accordingly, we find that plaintiffs’ claims should proceed to be determined by the motion court on a complete record (see e.g. 13 E. 124 LLC v. Taylor, 236 A.D.3d 562, 563, 231 N.Y.S.3d 23 [1st Dept. 2025]).  Thus, the orders, as modified to dismiss plaintiff Sam Waller's claims arising under his rent concession rider, are affirmed.

The Decision and Order of this Court entered herein on June 26, 2025 (239 A.D.3d 564, 238 N.Y.S.3d 163 [1st Dept. 2025]) is hereby recalled and vacated (see M–4125, decided simultaneously herewith).