LEISA ARAS CATHERINE SCHWARTZ v. REALTY CORP (2026)

Tanya R. Kennedy, J.P.

Saliann Scarpulla

Ellen Gesmer

Julio Rodriguez III

Bahaati E. Pitt–Burke, JJ.

Appeal No. 16846

Index No. 161448/14

Case No.2022–01126

Plaintiffs–Appellants–Respondents,

Catherine Schwartz, et al.,

Plaintiffs,

-against-

B–U Realty Corp. et al.,

Defendants–Respondents–Appellants.

Leisa Aras, et al.,

Upon remittitur from the Court of Appeals (45 NY3d 1010 [2026] ), plaintiffs-appellants-respondents argue that they have met the requisite standard of “sufficient indicia of fraud” or a “colorable claim of a fraudulent scheme” to exempt them from the applicable four-year lookback rule for rent overcharge claims (id at 1012).  Defendants-respondents-appellants, by contrast, urge this Court to conclude that plaintiffs-appellants-respondents have failed to present sufficient evidence of a fraudulent deregulation scheme to avail themselves of this exception.

Ephron–Mandel & Howard, L.L.P., New York (Damon P. Howard of counsel), for appellants-respondents.

Sidrane, Schwarz–Sidrane, Perinbasekar & Littman, LLP, Rockville Centre (Michael Littman of counsel), for respondents-appellants.

Rodriguez, J.

The Supreme Court order appealed from was issued before the Court of Appeals decided Burrows v. 75–25 153rd St., LLC (44 NY3d 74 [2025];  see Aras v. B–U Realty Corp., 45 NY3d 1010 [2026] ).  In Burrows, the Court refined the common-law standard applied to allegations of a fraudulent scheme to deregulate apartments subject to rent stabilization on a motion to dismiss under CPLR 3211 (see Burrows, 44 NY3d at 83–84).  More specifically, Burrows “made clear that, for the fraud exception [to the four-year lookback period in the former Rent Stabilization Law § 26–516(a) ] to apply, a plaintiff need not demonstrate each element of common-law fraud and instead must put forth sufficient indicia of fraud or a colorable claim of a fraudulent scheme” (Aras, 45 NY3d 1010 [internal quotation marks omitted] ).

Parallel to the Court of Appeals' development of the common law applicable to fraudulent deregulation claims, the legislature addressed the fraudulent deregulation standard by statute (see Burrows, 44 NY3d at 84 n, citing L 2024, ch 95, § 4).¹  Under the legislature's statutory amendments, the relevant inquiry is whether the landlord “ ‘knowingly engaged in [a] fraudulent scheme [to deregulate] after a consideration of the totality of the circumstances' “ (Maddicks v. 106–108 Convent BCR, LLC, 248 AD3d 511, 513 [1st Dept 2026], quoting L 2024, ch 95, § 4).²  To date, the Court of Appeals has not had occasion to “address to what extent this legislation differs from [the] common-law rule, and, if there is any difference, the impact or applicability of that legislation” (Burrows, 44 NY3d at 84 n).

Within this context, the dissent offers to cabin the analyses of the common-law standard and the legislative amendments.  The dissent thus concludes that while summary judgment should be denied under the common-law standard, the legislative amendments should be considered in the first instance upon a complete record and briefing before the motion court.

Bifurcating the analysis and partially reaching the merits as the dissent proposes would ignore that both the common-law and statutory authority (1) have materially changed since Supreme Court issued the order appealed from and (2) concern the very same issue — namely, the standard applicable to allegedly fraudulent deregulations.  Even assuming the dissent's proposed split analysis could prove workable in an appropriate case (e.g., where the applicable law had not doubly changed since the parties' original submissions), proceeding in this manner here would only serve to further obfuscate an area of the law still occupied with remedying past errors (see e.g. Burrows, 44 NY3d 74;  Matter of Regina Metro.  Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332 [2020];  Roberts v Tishman Speyer Props., L.P., 13 NY3d 270 [2009];  Alekna, 241 AD3d 414;  Gomes v. Vermyck, LLC, 238 AD3d 26 [2d Dept 2025] ).

Accordingly, under the circumstances, the intertwined standards should be considered in unison, and this matter should be remitted to Supreme Court for further proceedings consistent with the Court of Appeals' remittitur (see CPLR 5522 [“The court shall render a final determination or, where necessary or proper, remit to another court for further proceedings”];  see also Hadzovic v Buckley Sch. in the City of N.Y., 238 AD3d 487, 489 [1st Dept 2025] [remitting plaintiff's motion for summary judgment for consideration of amended applicable law] ).³

It bears emphasis that in the parties' supplemental letter briefing before this Court, defendants raised the issue of the legislative amendments' applicability, but plaintiffs were not afforded an opportunity to respond (see e.g. Lewis v. Revello, 172 AD3d 505, 506 [1st Dept 2019];  cf.  Matter of Kennelly v. Mobius Realty Holding LLC, 33 AD3d 380, 381–382 [1st Dept 2006] [affidavit offered in reply properly considered where court permitted surreply] ).

Finally, as the dissent notes, this Court previously concluded that the base date for all plaintiffs is November 18, 2010, four years before the original complaint was filed on November 18, 2014 (see Aras v. B–U Realty Corp., 221 AD3d 5, 8 [1st Dept 2023], revd on other grounds 45 NY3d 1010.  This determination is not disturbed on remittitur.

Accordingly, upon remittitur from the Court of Appeals (45 NY3d 1010), the order of Supreme Court, New York County (James D'Auguste, J.), entered on or about September 9, 2021, which, to the extent appealed from as limited by the briefs, granted the motion of plaintiffs Leisa Aras, Robert Arnot, Sarah Barish–Straus, James Gladstone, Kathleen Campana, Patricia Lederer, Albert Panozzo, Georgia Marantos, John Menapace, Karen Menapace, Peter Kane, and Paulina Perera–Riveroll for summary judgment on the issue of liability on the cause of action in the amended complaint for rent overcharges (the first cause of action) only with respect to plaintiffs Aras, Panozzo, Marantos, Kane, Perera–Riveroll, John Menapace, Karen Menapace, Barish–Straus, and Lederer, held the motion in abeyance with respect to plaintiffs Gladstone and Campana, and denied the motion with respect to plaintiff Arnot, should be reversed, on the law, without costs, the motion denied, and the matter remitted to Supreme Court for further proceedings consistent with this order.

All concur except Kennedy, J.P. and Scarpulla, J.,

who dissent in part in a separate Opinion by Kennedy, J.P.:

Kennedy, J.P., (dissenting in part)

In our review of the initial appeal, this Court considered whether plaintiffs established, in support of their motion for summary judgment, defendant's fraudulent scheme to destabilize the subject apartments, invoking application of the default formula pursuant to Rent Stabilization Code (RSC) (9 NYCRR) § 2526.1(g).  In a split decision, the majority applied the common-law elements of fraud and concluded that the record failed to establish fraud, such that application of the default formula was not appropriate.

The Court of Appeals reversed, noting that this Court's prior decision was issued before the Court of Appeals' decision in Burrows v. 75–25 153rd St., LLC (44 NY3d 74 [2025] ), “which made clear that for the fraud exception [to the four-year lookback period in Rent Stabilization Law (RSL) (Administrative Code of City of NY) § 26–516(a) ] to apply, a plaintiff need not demonstrate each element of common-law fraud and instead must put forth sufficient indicia of fraud or a colorable claim of a fraudulent scheme” (Aras v. B–U Realty Corp., 45 NY3d 1010, 1012 [2026], quoting Burrows, 44 NY3d at 82–83 [internal quotation marks omitted] ).  On remittal, the Court of Appeals instructed this Court to apply the foregoing standard, unique to rent overcharge proceedings under the former RSL and the provisions of RSC, and determine “whether plaintiffs have made a showing sufficient to invoke the fraud exception” pursuant to RSC § 2526.1(g) (id.).

Upon a review of the record before us, with the Court of Appeals' clarified standard and the parties' supplemental briefing, issues of fact remain as to whether the defendant landlord engaged in a fraudulent scheme to deregulate the apartments or to overcharge the plaintiffs, thereby tainting the reliability of the base date rents.  To that end, this Court previously concluded that the base date for all plaintiffs is November 18, 2010, four years before the original complaint was filed on November 18, 2014 (Aras v. B–U Realty Corp., 221 AD3d 5, 8 [1st Dept 2023], revd on other grounds 45 NY3d 1010 [2026] ).  This determination is not disturbed on remittitur.

Moreover, while this matter was pending before the Court of Appeals, the Legislature enacted amendments to the RSC and the RSL (the Amendments), which “adopted a totality of the circumstances approach to establishing a fraudulent scheme to remove an apartment from rent regulation” (Hadzovic v Buckley Sch. in the City of N.Y., 238 AD3d 487, 489 [1st Dept 2025] [internal quotation marks omitted] ).  To the extent defendants argue that plaintiffs failed to sustain their prima facie burden on summary judgment in establishing fraud under the newly-enacted “totality of the circumstances” approach, that issue “ ‘should be considered in the first instance on a complete record’ ” by the court below (Hadzovic, 238 AD3d at 489, quoting 13 E. 124 LLC v. Taylor, 236 AD3d 562, 563 [1st Dept 2025];  see Burrows, 44 NY3d at 84 n, citing L 2024, ch 95, § 4).

Contrary to the majority opinion, this opinion does not “cabin the analyses of the common-law standard and the legislative amendments.”  Rather, this dissent follows the directive from the Court of Appeals and is based on a review of the record before this Court.  The majority avoids reaching a decision on this appeal, despite the directive, and instead would have the parties relitigate the issues raised in plaintiffs' summary judgment motion, a course of action that neither party requested in their supplemental briefing.  While the Amendments do implicate the standard of review, that issue is not reached on this appeal or this record.  Indeed, in instances when the same issue was remanded, this Court still decided the appeal based on the record before it (see Hadzovic, 238 AD3d at 489 [1st Dept 2025] [denying defendant's motion for summary judgment and acknowledging that the application of the Amendments “should be considered in the first instance on a complete record by the motion court”] [internal quotation marks omitted];  see also 13 E. 124 LLC v. Taylor, 236 AD3d at 563 [1st Dept 2025][concluding that issues of fact remain such that defendant's summary judgment motion should be denied but acknowledging that the counterclaim should be considered in the first instance on a complete record because of the Amendments] ).

Simply stated, based on the record presented on this appeal, issues of fact remain as to whether the landlord defendant engaged in a fraudulent scheme to deregulate the apartments or to overcharge plaintiffs.  Accordingly, I respectfully dissent and conclude that plaintiffs' motion for summary judgment should be denied without the need for a remittur to Supreme Court.

Order, Supreme Court, New York County (James D'Auguste, J.), entered on or about September 9, 2021, reversed, on the law, without costs, the motion denied, and the matter remitted to Supreme Court for further proceedings consistent with this opinion.

Kennedy, J.P., Scarpulla, Gesmer, Rodriguez, Pitt–Burke, JJ.

Opinion by Rodriguez, J. All concur except Kennedy, J.P. and Scarpulla, J. who dissent in part in a separate Opinion by Kennedy, J.P.

THIS CONSTITUTES THE DECISION AND ORDER

OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED:  August 13, 2026

FOOTNOTES

1.   The briefing schedule before the Court of Appeals was interrupted by an almost two-year delay in appointing an administrator for one of the parties.

2.   The amendments apply “to any action or proceeding in any court” (L 2024, ch 95, § 5), which language was added to convey the intention that the amendments “apply to all pending and future proceedings” (Senate Introducer's Mem in Support of 2023 N.Y. Senate Bill S8011, enacted as L 2024, ch 95;  see Alekna v 207–217 W. 110 Portfolio Owner LLC, 241 AD3d 414, 415 [1st Dept 2025] ).

3.   Remittal to Supreme Court for such further proceedings is also supported by the respective procedural postures of Burrows and this matter.  As noted above, in Burrows, the Court of Appeals addressed the first-order inquiry of whether the plaintiffs had made sufficient allegations of a fraudulent scheme to deregulate such that the fraud exception to the four-year lookback rule could be invoked in the context of the defendant's CPLR 3211 motion to dismiss (see 44 NY3d at 83–84 [“The fraud exception, applicable only to an overcharge claim, simply allows for review of the rental history outside the four-year lookback period ․ As Supreme Court noted here, a plaintiff need not demonstrate fraud conclusively to survive a motion to dismiss, and we hold today that reasonable reliance is not a required element for the fraud exception to apply”] [internal citations and quotation marks omitted] ).  Here, plaintiffs submitted evidence in support of their CPLR 3212 motion for summary judgment with respect to the second-order inquiry of whether a fraudulent scheme to deregulate actually occurred.