Yen Hsang Chang, Kenneth Hicks, Randy Garcia, Tiffany Lee, Stephen Botta, Taileen Joa, Shirley Ovid Mitchell, Cynthia Lowe, Daniel Loria, Nicole Cocchiaro, Ann Votaw, Salvatore Russo, Elizabeth Bouk, Netania Budofsky, Jessica Goldhirsh, Joseph Ostwald, Andrew O'Brien, Laura Piraino, Melody Merker, Gary Topp, Kristina Bonhorst, Kent Haina Jr., Andrew Keltz, Darryl Washington, Megan Hagar, Marissa Koeller, Gabriella Garcia, Timothy Barker, Adeola Role, Carolina Botero, Joseph Cracco, David Walker, Florence LaGamma, Mary Levitt, Ryan Balas, Deirdre Balas, Jonathan Leung, Luke Van Dee Veer, Joseph Riccardi, Adrienne Riccardi, Henry Nicponski, Karen Claman, Peter Cernauskas, Ryan Clapp, Clement Chan, Matthew Haensly, Scott Chapman, Mohammad Islam, Stephanie Mosher, Algerson Andre, Lukasz Janik, Yolanda Nunley, Michael Albertson, Adina Wolf, Jonathan O'Grady, David Isaacs, Stephanie Macioch, Isabella Cardona, Michael Wilke, Shuchin Shukla, Mamua Jeme, Glenn English, Ana Marie Santos, Jen Watson, Kerry McFate, Desiree Grenay, Jonathan Grenay, Timothy Moran, Lorne Heilbronn, J.L. Duffy, Phyliss Hirshorn, Hans Kluefer, and Katherine Kluefer, on behalf of themselves and all others similarly situated, Plaintiffs, v. 309 LLC 45 LLC 118 LLC 20 LLC 30 LLC 133 LLC 153 LLC 170 LLC 624 LLC 177 LLC 617 LLC 213 LLC 55 LLC LLC LLC LLC ABIII LLC 47 LLC QPI XXXII LLC LLC 45 42 LLC LLC 47 21 LLC 42 LLC (2023)

I. LAW OF THE CASE

The Appellate Division affirmed this court's denial (Lubell, J.) of plaintiffs' prior motion to compel the documents plaintiffs now move to compel, because they previously failed to explain how the documents would show whether plaintiffs met the prerequisites for class certification and whether a class action is the most feasible method for adjudicating this controversy. C.P.L.R. § 901(a); Yen Hsang Chang v. Westside 309 LLC, 206 AD3d 491, 491-92 (1st Dep't 2022). Plaintiffs now provide that explanation comprehensively. Defendants do not contend otherwise, but instead insist that documents covering any period more than four years before commencement of this action April 3, 2018, are not discoverable. See C.P.L.R. § 213-a (effective June 19, 1997, to June 14, 2019). Defendants contend that plaintiffs may obtain disclosure covering an earlier period only if plaintiffs complain that defendants deregulated plaintiffs' apartments, which is not the case here, and plaintiffs show indicia of defendants' fraud. Casey v. Whitehouse Estates, Inc., 39 NY3d 1104, 1106 (2023); Regina Metro. Co., LLC v. New York State Div. of Hous. & Community Renewal, 35 NY3d 332, 354-55 (2020); Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 366-67 (2010).

In a decision that was not appealed and remains law of the case, this court (Kalish, J.) found that plaintiffs adequately alleged indicia of defendants' fraud to entitle plaintiff to disclosure looking back longer than the statute of limitations of four years. Chang v. Bronstein Props. LLC, 2019 NY Slip Op. 30744(U) (Sup. Ct. NY Co. Mar. 21, 2019), at *18. As Justice Kalish determined, plaintiffs allege that defendants perpetrated a fraudulent scheme to inflate rents above the levels permitted under the New York Rent Stabilization Law. Defendants did so by misrepresenting that they performed individual apartment improvements (IAIs) during vacancies, which entitled defendants to increase the rent, when the apartments did not appear to be improved, and no permits were issued for claimed improvements that would have required a permit. Id. at *3, *8.

II. DEFENDANTS' CONTENTIONS

Defendants contend that their improvements before April 3, 2014, were non-structural interior renovations that did not impact health or safety and require a permit, yet required enough expenditures to increase rents above the deregulation threshold. Bazan v. New York State Div. of Hous. & Community Renewal, 189 AD3d 495, 496 (1st Dep't 2020). Therefore plaintiffs are entitled to disclosure to ascertain the extent of those improvements, to determine their value, whether they were repairs rather than improvements, whether defendants claimed the same improvements twice, and whether the New York City Department of Buildings required a permit, and to ascertain whether defendants obtained one. This disclosure will show whether defendants engaged in such practices throughout defendants' buildings where plaintiffs reside. Documents showing whether the buildings operated under common ownership and management also may indicate a pattern or common practice. Since defendants rely on invoices from and checks to contractors to show defendants' expenditures, plaintiffs are entitled to disclosure regarding the relationship between defendants and their contractors to show that defendants may have created these documents to support increases after the fact without the improvements actually having been performed.

Plaintiffs are entitled to the contemporaneous rent histories, including rent registrations and notices of deregulation for plaintiffs' apartments and the State Division of Housing and Community Renewal (DHCR) Registration Rent Roll Report and Cases by Building Report, to determine whether the actual improvements justified the rent increases and any resulting deregulation. This disclosure will show whether defendants engaged in a practice of unjustified rent increases throughout defendants' buildings where plaintiffs reside. Importantly, plaintiffs' inspection of this history is at this juncture only to determine whether defendants' engaged in a fraudulent scheme to increase rent above the deregulation threshold so as to taint the reliability of the rent April 3, 2014, the base date, and not to furnish evidence to calculate the regulated rent April 3, 2014, or permit recovery of overcharges before that date. Regina Metro. Co., LLC v. New York State Div. of Hous. & Community Renewal, 35 NY3d at 355; Grimm v. State of NY Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d at 367. As the inquiry is whether the reliability of the base date's rent is tainted, and the documents determinative of that question are in defendants' possession or control, to require plaintiffs to show that the base date's rent is tainted before they may access these documents is illogical.

Defendants maintain that 9 N.Y.C.R.R. §§ 2521.2(c) and 2523.7(b) (2018) did not require them to retain records more than four years before April 3, 2014. First, defendants themselves rely on such records (unless defendants created those records after the fact). If defendants did retain such records, defendants must produce those records to the extent demanded.

Second, defendants claim they charged preferential rents, below the maximum regulated rent, for most of plaintiffs' apartments. When owners charged preferential rents, 9 N.Y.C.R.R. § 2521.2(c) required retention of the entire "rental history of the housing accommodation immediately preceding such preferential rent." (emphasis added)

Third, 9 N.Y.C.R.R. § 2526.1(a)(2)(iv) (2018) provided that, when tenants complained of overcharges, their apartments' rental histories more than four years before their complaints were subject to examination to determine not only whether a fraudulent scheme by defendants to deregulate rendered the base date's rent unreliable. The prior rental histories were subject to examination to determine also whether any practice by defendants that deprived tenants of their rights under the New York Rent Stabilization Code rendered the base date's rent unreliable. 9 N.Y.C.R.R. § 2525.3(d) (2018). Both purposes apply here.

To the extent plaintiffs must show defendants engaged in a fraudulent deregulation scheme, as opposed to other fraudulent conduct, a fraudulent scheme to inflate rents so that they rise above the deregulation threshold, or they rise close enough to the threshold to surpass it upon the next vacancy or Rent Guidelines Board increase, is a fraudulent deregulation scheme. 435 Cent. Park W. Tenant Assn. v. Park Front Apts., LLC, 183 AD3d 509, 510 (1st Dep't 2020). Defendants do not dispute that their improvements effected just such rent increases.

III. CONCLUSION

As explained above, whether plaintiff may use the rental history of their apartments before April 3, 2014, to prove the ultimate merits of their claim to set a lower regulated rent is not the issue now before the court. Plaintiffs may use that history to establish the prerequisites for class certification and whether a class action is the most feasible method for adjudicating this controversy. C.P.L.R. § 901(a); Yen Hsang Chang v. Westside 309 LLC, 206 AD3d at 491-92.

Consequently, the court grants plaintiffs' motion to compel defendants to produce the following demanded documents within 20 days after service of this order with notice of entry, unless the parties stipulate to a different deadline. C.P.L.R. §§ 3120(1)(i) and (2), 3124. Defendants shall produce their operating and management agreements, all documents showing the ownership and formation of defendants, and all communications between any plaintiff and any defendant. For each of plaintiffs' apartments, defendants shall produce all IAI and major capital improvement records, Notices of Deregulation, apartment registrations, leases, other rent records, and the DHCR Registration Rent Roll Report and Cases by Building Report. The parties also may stipulate to a different scope of documents.

Dated: July 17, 2023

LUCY BILLINGS, J.S.C.

Lucy Billings, J.