SUTTON v. 76 ST NICHOLAS PLACE LLC (2026)

Order, Supreme Court, New York County (Paul A. Goetz, J.), entered on or about April 8, 2025, which, to the extent appealed from as limited by the briefs, granted defendant's motion pursuant to CPLR 1021 to substitute its successor-in-interest (purchaser) as defendant in its place, unanimously modified, on the law, to grant the motion only to the extent of ordering that the purchaser be joined as an additional defendant, and otherwise affirmed, without costs.

The motion court held that plaintiffs could obtain complete relief from the purchaser, to which ownership was transferred 3 1/212 years after this action was commenced, pursuant to the Rent Stabilization Code, which provides that “a current owner shall be responsible for all overcharge penalties, including penalties based upon overcharges collected by any prior owner” (9 NYCRR 2526.1[f][2][i] ).  However, full substitution is prejudicial to plaintiffs, as it would inject into the litigation the issue of whether the purchaser “knew or had reason to know about the overcharge as a potential bar to collecting treble damages,” a defense that is not available to defendant (Charlton v. 92 Pinehurst Ave. LLC, 242 AD3d 504, 504 [1st Dept 2025], citing Le Bihan v. 27 Wash. Sq. N. Owner LLC, 205 AD3d 616, 617–618 [1st Dept 2022] ).  Indeed, were defendant to be released from this action any damages to which plaintiffs may be entitled could be substantially diminished.  Considering the prejudice to plaintiffs, the court should have exercised its discretion to order that the purchaser be “joined in the action” as a party defendant rather than substituted as the defendant (CPLR 1018;  see also Peters v City of N.Y. Health & Hosps.  Corp., 48 AD3d 329, 329 [1st Dept 2008];  HSBC Guyerzeller Bank AG v. Chascona N.V., 42 AD3d 381, 382 [1st Dept 2007] ).

We have considered the remaining contentions and find them unavailing.