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Jennifer Ann SEIDE and T. Cowan on behalf of themselves and all others similarly situated, Plaintiffs, v. 25-21 31ST AVENUE, LLC, Defendant.
The following numbered e-filed papers read on the motion by Defendant 25-21 31st Avenue LLC, (hereinafter referred to as “25-21”), to dismiss the class action complaint pursuant to CPLR 3211 (a) (7), and the separate motion by the Plaintiffs class, represented herein by Jennifer Ann Seide, (hereinafter referred to as “Seide”), for summary judgment as to liability and a determination as to how the damages should be computed against the Defendant.
E-filed Papers Numbered
Notices of Motions - Affidavits - Exhibits 60-158,160-169
Answering Affidavits - Exhibits 170-175, 177-186
Reply Affidavits 176, 187
Upon the foregoing papers it is ordered that the motions are determined as follows:
This is an action by Plaintiffs class of tenants seeking relief from an alleged fraudulent scheme whereby they claim the Defendant illegally deregulated their rent stabilized apartments. This claim arises from the aftermath of the Court of Appeals’ decision in Roberts v Tishman Speyer Properties, L.P., 13 NY3d 270 , wherein the Court ruled that property owners of rent stabilized buildings who are enjoying the benefits of the J51 tax abatement program, may not deregulate any rent stabilized apartments within such building until such time as the J51 benefit is no longer in effect. Significantly here, the incidents of illegal rent-stabilized rent-deregulation of the subject apartments, occurred post-Roberts. The Defendant's answer and motion to dismiss contends that although the subject apartments were admittedly deregulated illegally, that doing so was a “mistake”, and not a fraudulent scheme. Further, Defendant asserts that it has already corrected the “mistake”, by re-registering the apartments as rent stabilized with DHCR, self-adjusted the rent amounts by utilizing the “4 year look back” method, and issued refunds with interest to the affected tenants, both in, and out of occupancy, as the Defendant understood had been countenanced by Regina Metropolitan Co., LLC v New York State Division of Housing and Community Renewal, [35 NY3d 332] 2020.
Defendant claims that until the Court's decision in Regina, it did not have any idea how it could effectuate compliance with the law. Additionally, Defendant further claims that in light of these corrective measures, Plaintiffs’ causes of action are thereby moot and should be dismissed. Plaintiffs assert that the so-called corrections were improperly implemented, are continuing the effects of the illegal deregulation, and that taken together, should result in a summary judgment against Defendant, and seeks an order to recalculate Plaintiffs’ rents using the default method and attorney's fees.
In support of its motion for summary judgment, Plaintiffs class submitted, among other things, their attorney's affirmation, a copy of the pleadings, copies of relevant leases, copy of list of deregulation dates, copy of DHCR Rent Roll, copy of the DHCR J-51 FAQ letter, and a copy of Preferential Rent Chart. In opposition, and in support of its motion to dismiss, Defendant submitted, inter alia, its attorney's affirmation, a statement of undisputed facts, and the affidavit of Jana Schmidt, an officer of Defendant. In opposition to Defendant's motion to dismiss, Plaintiffs also submitted, inter alia, a copy of a printout from the New York State Unified Court System identifying Jana Schmidt as a duly admitted attorney in good standing in the State of New York, from 2000 to the present, a copy of a map quest printout identifying the managing agent Urban American Management as having the same address where Ms. Schmidt maintains her work address, and a copy of a Wall Street Journal article describing Urban American Management as owning or managing around “15,000 apartments in the city.”
At the outset, Defendant has withdrawn its First, Third, Fourth, Seventh, Eighth, Ninth, Twelfth, Fourteenth, Eighteenth, Nineteenth, Twentieth, and Twenty-First affirmative defenses.
It is without question that the law regarding luxury de-regulation of rent stabilized apartments in a building having a J51 tax abatement in effect, prior to 2009, was misinterpreted by DHCR and resulted in improper guidance for property owners owning such buildings under such circumstances. However, post-Roberts, the law was made abundantly clear, that, it was illegal to de-regulate a rent stabilized apartment while J51 benefits were in effect. The reliance by Defendant upon the state of confusion regarding recalculation of rents after they had been deregulated pre-Roberts, is unavailing, as it is undisputed that all of the deregulating activity occurred post-Roberts. The law since 2009 is well settled, that deregulating a rent stabilized apartment while a J51 is in effect is prohibited. (Roberts, 13 NY3d 270; Regina, 35 NY3d 332; Matter of Grimm v New York State Div. of Housing & Community Renewal, 15 NY3d 358 .)
As Defendant concedes in its statement of undisputed facts, but for the Defendant's objection to the manner in which Plaintiffs characterized them, there are basically no disputed facts of any significance. Plaintiffs brought this action with the filing of the summons and complaint on November 9, 2018, two years after DHCR issued a letter to all multiple dwelling property owners that they are required by law to re-register apartments that had been improperly deregulated with DHCR, as rent stabilized apartments. It was not until two years after the filing of the summons and complaint, and four years after the aforementioned DHCR letter that the Defendant decided, on September 9, 2020, to do so, and took it upon itself to recalculate the rents pursuant to its own interpretation of Regina, offering refunds to all affected tenants, limited to the 4 years prior to the filing of the summons and complaint. Clearly, Defendant violated the prohibition against deregulating rent stabilized apartments, and did so on a continuous basis on numerous occasions from 2010, up through and including, 2015. Forty-three tenancies were illegally affected by these acts of deregulation. The rents charged after deregulation were artificially inflated from the date of deregulation until it was reverted to rent stabilization. As these rents were improperly established as part of this effort, it is clear that bringing rents back four years to these illegal rents is unfair and inequitable. That overcharges occurred is demonstrated by the refunds paid or offered to the effected tenants.
While the 4 year look back formula is proper in enabling property owners to recalculate rents that were improperly adjusted by mistake, in keeping with the applicable statute of limitations, the courts have ruled that where Plaintiffs have demonstrated that Defendant property owner engaged in a colorable fraudulent scheme, the default formula will be utilized instead. (See Regina,35 NY3d 332; Montera v KMR Amsterdam LLC, 193 AD3d 102 [1st Dept 2021].) Defendant's reliance on Kuzmich v 50 Murray Street Acquisition LLC, is misplaced, as there, a 421(a) tax abatement was involved, not J-51, and there was no finding of willfulness or indicia of fraud. It is further noted that the facts in this case are quite different than those in Gridley v Turnbury Village, LLC, 196 AD3d 95 [2d Dept 2021], where there was no proof offered of any overcharging by the property owner, the apartments were re-registered soon after the 2016 DHCR letter was received, and no indicia of fraud was found.
Here, Plaintiffs have shown a colorable fraudulent scheme, in that, Defendant deregulated 43 tenancies over a nearly 6 year period of time, after Roberts, and did not re-register these apartments as rent stabilized until 11 years thereafter, and 4 years after the DHCR letter of 2016. (See Casey v Whitehouse Estates, Inc., 197 AD3d 401 [1st Dept 2021]; Montera,193 AD3d 102.) It was not until 2 years after the filing of the summons and complaint that Defendant chose to re-register. Further, Defendant used its own contrived rent record to arrive at the base rent in order to calculate refunds to the Plaintiffs from 2014, without any basis, comparison, or attempt to ascertain what a proper rent stabilized legal rent might have been in 2014. Since going back 4 years from the date of the filing of the summons and complaint could only create a base rent which would be a product of a fraudulent scheme to deregulate, the default formula must be used. (See Grimm v State Div. of Housing and Community Renewal, 15 NY3d 358 ; Thornton v Baron, 5 NY3d 175 ; Casey, 197 AD3d 401; Montera, 193 AD3d 102.)
A movant for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law, by offering sufficient evidence to demonstrate the absence of any material issues of fact. (See Alvarez v Prospect Hosp., 68 NY2d 320 .) Once satisfied, the burden shifts to the other party to rebut the prima facie showing by raising a triable issue of fact. (Id.)
Plaintiffs have met its prima facie burden demonstrating that their apartments were illegally deregulated post-Roberts, pursuant to a fraudulent scheme of deregulation while a J51 tax abatement benefit was still in effect. (See Montera, 193 AD3d 102 [1st Dept 2021].) Defendant has failed to raise a triable issue of fact, offering lack of knowledge as a defense. Ignorance of the law is no defense, and willful ignorance remains willful conduct sufficient to find fraud. (Id.; see generally Grady v Hessert Realty L.P., 178 AD3d 401 [1st Dept 2019]; Obiora v New York State Div. Of Housing & Community Renewal, 77 AD3d 755 [2d Dept 2010].) This is especially so as the property was managed, at least since 2011 by a sophisticated managing agent. (Grady, 178 AD3d 401; Montera, 193 AD3d 102.)
Accordingly, Defendant's motion, sequence #005 to dismiss Plaintiffs’ complaint is denied in its entirety. Plaintiffs’ motion, sequence #006, for summary judgment against Defendant is granted. Defendant has withdrawn the affirmative defenses. A special referee shall be assigned to recalculate the rents using the default formula, along with attorneys fees pursuant to CPLR 909.
The parties shall agree to a special referee for recalculation in accordance with this Decision and Order and notify the Court of the agreed to Special Referee. If the parties are unable to agree to a Special Referee, they should notify the Court via email for a conference with the Court for an appointment.
The above constitutes the Decision and Order of the Court.
Pam Jackman Brown, J.
Response sent, thank you
Docket No: Index No. 717276/2018
Decided: October 29, 2021
Court: Supreme Court, Queens County, New York.
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