ARMSTRONG v. DUMBO LOFTS RENTAL LLC (2026)

DECISION & ORDER

In an action, inter alia, for a judgment declaring that the plaintiffs' tenancies at their respective apartments are subject to the Rent Stabilization Law and Rent Stabilization Code and to recover damages for rent overcharges, the plaintiffs William Armstrong, Jennifer Mancini, Propel-ant, Inc., Norman Yun, Nam Hee Lee, and Nusrat Durrani appeal from an order of the Supreme Court, Kings County (Carl J. Landicino, J.), dated June 7, 2021.  The order, insofar as appealed from, granted those branches of the defendant's motion which were for summary judgment dismissing so much of the amended complaint insofar as asserted by those plaintiffs as alleged that the defendant engaged in a fraudulent scheme to deregulate their rent-stabilized apartments and as sought a rent freeze and so much of the first cause of action as sought a judgment declaring that those plaintiffs' tenancies at their respective apartments are subject to the Rent Stabilization Law and Rent Stabilization Code.

ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and those branches of the defendant's motion which were for summary judgment dismissing so much of the amended complaint insofar as asserted by the plaintiffs William Armstrong, Jennifer Mancini, Propel-ant, Inc., Norman Yun, Nam Hee Lee, and Nusrat Durrani as alleged that the defendant engaged in a fraudulent scheme to deregulate their rent-stabilized apartments and as sought a rent freeze and so much of the first cause of action as sought a judgment declaring that those plaintiffs' tenancies at their respective apartments are subject to the Rent Stabilization Law and Rent Stabilization Code are denied.

The defendant is the owner of a residential building located in Brooklyn that received J–51 tax abatement benefits from 2000 to 2014.  The plaintiffs became tenants of different rent-stabilized apartments in the building during that time.  In 2019, the plaintiffs commenced this action alleging that the defendant and its predecessor in interest (hereinafter together the owners) engaged in a fraudulent scheme to improperly deregulate the plaintiffs' apartments, which resulted in unlawfully inflated rents.  The plaintiffs alleged that their leases and the registration forms filed by the owners with the Division of Housing and Community Renewal falsely identified an inflated legal regulated rent for each apartment and a lower “preferential rent” that was being charged to each plaintiff, when, in fact, the plaintiffs were not being charged a preferential rate.  The plaintiffs further alleged that the owners failed to advise the plaintiffs of the correct legal regulated rent, failed to provide the requisite notices in the leases and lease renewals that the owner was receiving J–51 benefits and the approximate expiration date of those benefits, and falsely claimed that the rent-stabilized statuses of the apartments had expired.  The plaintiffs further alleged that the owners tendered nonstabilized leases at market rates to the plaintiffs and increased the rents at rates above that which was allowed under the Rent Stabilization Law. The amended complaint sought, inter alia, a judgment declaring that the plaintiffs' tenancies are subject to the Rent Stabilization Law and Rent Stabilization Code, a determination of their legal regulated rents, and to recover damages for rent overcharges.

Prior to any discovery, the defendant moved for summary judgment dismissing the amended complaint.  In an order dated June 7, 2021, the Supreme Court determined, among other things, that the plaintiffs had failed to allege reliance on the owners' alleged deceptive acts and that in the absence of demonstrating the elements of common-law fraud, the plaintiffs could not establish a fraudulent scheme.  The court, inter alia, granted those branches of the defendant's motion which were for summary judgment dismissing so much of the amended complaint insofar as asserted by the plaintiffs William Armstrong, Jennifer Mancini, Propel-ant, Inc., Norman Yun, Nam Hee Lee, and Nusrat Durrani (hereinafter collectively the appellants) as alleged that the defendant engaged in a fraudulent scheme to deregulate their rent-stabilized apartments and as sought a rent freeze and so much of the first cause of action as sought a judgment declaring that the appellants' tenancies at their respective apartments are subject to the Rent Stabilization Law and Rent Stabilization Code. This appeal ensued.

At the time the subject alleged overcharges occurred, “rent overcharge claims [were] generally subject to a four-year statute of limitations,” and no award of the amount of an overcharge could be based upon an overcharge having occurred more than four years before a complaint was filed (Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 364;  see CPLR former 213–a;  Rent Stabilization Law of 1969 [Administrative Code of City of NY] former § 26–516[a][2] ).  “[R]eviewing rental history outside the four-year lookback period was inappropriate for purposes of calculating an overcharge, but [the Court of Appeals] recognized a limited common-law exception to the otherwise-categorical evidentiary bar, permitting tenants to use such evidence only to prove that the owner engaged in a fraudulent scheme to deregulate the apartment” (Matter of Regina Metro.  Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332, 354).  If a tenant made a “ ‘colorable claim of fraud’ by identifying ‘substantial indicia,’ i.e., ‘evidence,’ of ‘a landlord's fraudulent deregulation scheme to remove an apartment from the protections of rent stabilization,’ ” then the apartment's rental history must be examined to determine whether a fraudulent scheme to destabilize the apartment tainted the reliability of the rent on what would otherwise be the base date for determining the legal regulated rent (id. at 355, quoting Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d at 366–367).  “If review of the rental history revealed such a fraudulent scheme, then the legal rent should be based on a ‘default formula’ otherwise reserved for cases where there are no reliable rent records, rather than the rent actually charged on the [base] date” (Matter of Fairley v State of New York Div. of Hous. & Community Renewal, 214 AD3d 800, 802;  see Matter of Regina Metro.  Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d at 354–355).

A plaintiff claiming that an owner has engaged in a fraudulent scheme to deregulate an apartment “need not demonstrate each element of common-law fraud, including reliance” to establish a fraudulent deregulation scheme (Burrows v. 75–25 153rd St., LLC, 44 NY3d 74, 79;  see Gomes v. Vermyck, LLC, 238 AD3d 26, 38–39).  “Given the narrow purpose and scope of the fraud exception, there is no basis for imposing the pleading requirements of a common-law fraud claim.  Instead, [courts] require plaintiffs to put forth ‘sufficient indicia of fraud’ or a ‘colorable claim’ of a fraudulent scheme but do not impose a burden to establish each element of a common-law fraud claim” (Burrows v. 75–25 153rd St., LLC, 44 NY3d at 83;  see Gomes v. Vermyck, LLC, 238 AD3d at 38–39).

“[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact.  Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers” (Alvarez v. Prospect Hosp., 68 N.Y.2d 320, 324 [citations omitted];  see Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853).  Here, the defendant failed to establish, prima facie, that it did not engage in a fraudulent scheme to destabilize the appellants' apartments.  The conclusory and self-serving affidavit of its chief financial officer failed to establish the absence of a fraudulent scheme (see Matter of Teore v State of New York Div. of Hous. & Community Renewal, 234 AD3d 860, 862–863;  see also Cox v. 36 S Oxford St, LLC, 237 AD3d 604, 606).  Accordingly, the Supreme Court should have denied that branch of the defendant's motion which was for summary judgment dismissing so much of the amended complaint insofar as asserted by the appellants as alleged that the defendant engaged in a fraudulent scheme to deregulate the appellants' rent-stabilized apartments.

The defendant also failed to demonstrate its prima facie entitlement to judgment as a matter of law dismissing so much of the amended complaint as alleged that the appellants were entitled to a rent freeze from the date of the initial rent registrations.  The defendant's submissions failed to eliminate triable issues of fact as to whether the annual rent registration statements filed for the appellants' apartment units were “proper and timely” within the meaning of Administrative Code of City of N.Y. § 26–517(e) (see Bradbury v. 342 West 30th St, 84 AD3d 681, 684;  Jazilek v. Abart Holdings, LLC, 72 AD3d 529, 531).  Accordingly, the Supreme Court should have denied that branch of the defendant's motion which was for summary judgment dismissing so much of the amended complaint insofar as asserted by the appellants as sought a rent freeze.

Furthermore, in light of the fact that the defendant has conceded that the appellants' apartments are rent stabilized, the Supreme Court should not have granted that branch of the defendant's motion which was for summary judgment dismissing so much of the first cause of action as sought a judgment declaring that the appellants' tenancies at their respective apartments are subject to the Rent Stabilization Law and Rent Stabilization Code but should instead have denied that branch of the motion (see Jannetti v. Whelan, 165 AD3d 1082, 1084).

The appellants' remaining contention is without merit.

BARROS, J.P., BRATHWAITE NELSON, WARHIT and GOLDBERG VELAZQUEZ, JJ., concur.