Renee Groschlaude, Petitioner, v. Sarah R. Lawlor et al., Respondents.
Recitation, as required by CPLR 2219 (a) of the papers considered in review of this motion by NYSCEF Doc Nos: 12-44.
PROCEDURAL HISTORY AND BACKGROUND
This is a licensee holdover proceeding commenced by the prime tenant of this rent stabilized premises, Renee Groschlaude ("petitioner"), against Sarah Lawlor ("respondent"). Respondent retained counsel and submitted an answer asserting as a first and only affirmative defense that petitioner is an illusory prime tenant and that respondent "is entitled to protection under the Rent Stabilization Law and Code as a rent-stabilized tenant in her own right." (NYCSEF Doc No. 10, answer ¶ 9.) As the basis for this claim, respondent states through her attorney in her unverified answer that she and her boyfriend Patrick [McDonald] moved into the subject apartment in 2014 as "subtenants," that her boyfriend has vacated, and that she has lived in the premises for eight years. (Id. ¶¶ 10-11.) The remainder of the bases for her claim are pleaded in paragraphs 12-16 of the answer upon "information and belief" to be true:
12. Upon information and belief, prior to Respondent's subtenancy Petitioner was renting out the apartment to another subtenant or to multiple subtenants.
13. Upon information and belief, Petitioner has not occupied or exerted dominion and control over the subject apartment since approximately 2012.
14. Upon information and belief, Petitioner has no intent to return to the subject apartment.
15. Upon information and belief, the landlord of the subject premises and/or the landlord's agents have had actual knowledge and/or constructive knowledge of this arrangement.
16. Upon information and belief, the landlord of the subject premises has not submitted registration statements for the subject apartment with the NYS Division of Homes and Community Renewal (DHCR) as required by law.
17. Upon information and belief, the landlord of the subject premises has utilized this illusory prime tenancy arrangement as a means of circumventing the protections afforded tenants under the Rent Stabilization Law and Code.
Respondent's sworn affidavit, unlike her unverified answer, does not refer to herself as a "subtenant." (NYSCEF Doc No. 14, Lawlor affidavit.) Respondent's affidavit states that she paid her boyfriend, Patrick, $1,000 at some unspecified time and that she believe[s]" he paid it to petitioner. (Id. ¶ 7.) She does not know how much rent petitioner pays the owner of the building, JMS Realty, LLC ("JMS"), and she does not state how much Patrick paid as rent to petitioner. (Id. ¶ 8.) She believes that petitioner sublet to someone else before she moved in. (Id. ¶ 9.) "As far as [she] know[s]" petitioner has not lived in the apartment since 2012 and has no intent of returning. (Id. ¶ 10.)
Now before the court is respondent's motion to implead the owner of the subject building to amend the answer to assert a cross-claim against JMS, and for discovery. (NYSCEF Doc No. 12, motion [sequence 1].) The proposed amended answer cross-claims to enjoin JMS to offer respondent a rent stabilized lease. (NYSCEF Doc No. 19, respondent's exhibit E, proposed amended answer ¶¶ 19-20.) Respondent argues that the New York City Civil Court Act ("CCA") § 110 (d) gives this court the power to "join any other person or city department as a party in order to effectuate proper housing maintenance standards and to promote the public interest." Respondent claims, without citation, that, indeed, JMS is a "necessary party" to the proceeding without whom complete relief between the named parties cannot be obtained. Respondent argues that complete relief can only be obtained by impleader of JMS because if respondent prevails, she will be entitled to a rent stabilized lease that JMS will be bound to offer.Respondent also expresses concern that JMS will be "inequitably affected" if respondent prevails. (CPLR 1001; NYSCEF Doc No. 33, respondent's memorandum of law, at 4.)
JMS has opposed the motion on the basis that respondent has not complied with the procedural requirements for a motion to implead a party, the requested amendment to the answer is not within the jurisdiction of the Housing Court, and that respondent has not pleaded facts to support an illusory tenancy scheme as against JMS which would warrant the impleader of JMS. While not defenses pleaded or sought to be pleaded by respondent in her proposed amended answer, JMS further defends that a tenancy by waiver or estoppel cannot be created, and that a superintendent with knowledge of an occupant's presence does not create a tenancy based on apparent authority. In opposition to respondent's motion for discovery, JMS counters that respondent has not shown ample need for discovery related to a cause of action, that the demands are overly broad and lack specificity, that the documents requested are not within the exclusive possession of JMS, e.g. public documents that can be obtained by subpoena, and that respondent should personal knowledge of whether she is a subtenant pursuant to an agreement with petitioner. JMS does not express concerns similar to respondent's that JMS will be prejudiced if not joined. In fact, JMS states that it would be prejudiced by having to defend in a dispute between a tenant and an illegal occupant that does not involve the owner. (NYSCEF Doc No. 37, JMS attorney's affirmation in opposition.)
Petitioner opposes respondent's motion and has cross-moved to dismiss respondent's first affirmative defense. Petitioner argues that respondent has not shown ample need for discovery as she has not stated a claim founded in an illusory tenancy as defined by the courts, and that she has not demonstrated that she has standing to assert this defense as she admits that she never paid rent directly to petitioner; thus, petitioner argues, respondent cannot have been overcharged (one of several indicia of an illusory tenancy claim), and that she has not pleaded that she was a party to a sublease arrangement with petitioner. Petitioner's cross-motion seeks to strike respondent's first affirmative defense for the same reasons as stated above. As it is dispositive of respondent's motion to implead JMS, the court will first determine petitioner's cross-motion to strike respondent's affirmative defense.
What Is an Illusory Tenancy?
An illusory tenancy is at its core a fraudulent scheme to create a prime tenancy with the intent to circumvent the rent stabilization laws, thus depriving a subtenant of the protection of those laws in their own right. (Thornton v Baron, 5 NY3d 175  [finding that the landlord had engaged in an elaborate and fraudulent illusory tenancy scheme to circumvent the rent stabilization laws].) Where the prime tenancy is found to be illusory, the subtenant is not subject to eviction as a licensee. Courts have formulated remedies to prevent "non-bonafide, illusory tenants . . . from violating the rights of bona fide tenants occupying stabilized property." (Badem Bldgs. v Abrams, 70 NY2d 45, 48, 53 .)
An illusory tenancy can present itself in many forms, and over the years court have identified several recurring factors indicative of same. The Court of Appeals has opined that "[a]n illusory tenancy is defined generally as a residential leasehold created in a person who does not occupy the premises for his or her own residential use and subleases it for profit, not because of necessity or other legally cognizable reason." (Badem Bldgs. v Abrams, 70 NY2d 45, 52—53 .) Collusion between the landlord and prime tenant is not required, although there should at least be constructive knowledge. Primrose Mgmt. Co. v Donahoe, 253 AD2d 404 [1st Dept 1998]. An illusory tenancy has been found where "an alter ego of the owner rents an apartment as the 'tenant' and then 'sublets' to an innocent third party in an effort to stockpile vacancies or subscriptions for a conversion to cooperative or condominium ownership" (Manocherian v Lenox Hill Hosp., 229 AD2d 197, 205 [1st Dept 1997].) Some courts have found "profiteering" to be a sine qua non of an illusory tenancy. (333 E. 49th Partners, L.P. v Siebert, 23 Misc 3d 132 [A] [App Term 2009] [declining to find a prime tenancy illusory absent a showing that tenant "improperly profit[ed] by violating the rent regulations, . . . the hallmark of an illusory tenancy (emphasis added)"]; see also 270 Riverside Drive, Inc. v Wilson, 195 Misc 2d 44, 50—51 [Civ Ct, New York County 2003] [". . . the hallmark of illusory tenancy is a subtenancy set up to improperly profit by violating the rent regulations"].) Courts have also determined that "[a] case presenting the issue of illusory tenancy requires that the court examine the bona fides of the tenancy of the person [or entity] asserted to hold the status of prime tenant over the party in occupancy as subtenant." (Sapp v Clark Wilson, Inc., 206 AD3d 1014, 1016—17 [2d Dept 2022].)
As summarized in Art Omi, Inc. v Vallejos, 15 Misc 3d 870, 875 (App Term, 1st Dept 2008):
"Courts look at several factors to determine whether a tenancy is illusory. One factor is whether the prime tenant ever occupied or intended to occupy the premises for residential use. A second is whether the prime tenant had dominion and control over the apartment. A third is whether the prime tenant and the landlord colluded in the scheme or whether the landlord had constructive knowledge of it. A fourth is whether the subtenant reasonably expected to continue in possession indefinitely as a rent-regulated tenant when the sublease ends. A fifth is whether the prime tenant profited by overcharging the subtenant. These factors are "indicia that a tenancy is illusory and not as prerequisites to such a finding. . . . No single factor is determinative (internal cites and quotations omitted)."
(See also Bruenn v Cole, 165 AD2d 443, 447 [1st Dept 1991].) However, as set forth below, even so, and even in the aggregate, respondent has not adequately pleaded factors that would indicate a fraudulent scheme to circumvent the rent stabilization laws by creating an illusory tenancy which has deprived respondent of her right to the protections of the rent stabilization laws. Most significantly, respondent must first plead facts to demonstrate that she is a subtenant and therefore has standing to claim that she is the actual bona fide tenant entitled to the protections of rent stabilization that petitioner enjoys. This is because, while there are many factors that can lead to a determination of an illusory tenancy, currently there is no case law, controlling or otherwise, to suggest that an occupant who is not a subtenant has standing to assert the claim.
Petitioner's Cross-Motion to Strike - Striking Defenses Pursuant to CPLR 3211 (b)
A motion to dismiss a defense pursuant to CPLR 3211 (b) "is akin to that used under CPLR 3211 (a) (7), i.e., whether there is any legal or factual basis for the assertion of the defense." (3505 BWAY Owner LLC v McNeely, 67 Misc 3d 583, 584 [Civ Ct, New York County 2020, affd, 72 Misc 3d 1 [App Term, 1st Dept 2021].) "The allegations set forth in the answer must be liberally construed and viewed in the light most favorable to the respondent," who is entitled to the benefit of every reasonable inference. (182 Fifth Ave. v Design Dev. Concepts, 300 AD2d 198, 199 [1st Dept 2002]). CPLR 3211 (b) provides "[a] party may move for judgment dismissing one or more defenses, on the ground that a defense is not stated or has no merit." Furthermore, "[s]tatements in a pleading shall be sufficiently particular to give the court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action or defense." (CPLR 3013.) "Fraud consists of evidence of a representation of material fact, falsity, scienter, reliance and injury." (Regina Metro. Co., LLC v. New York State Div. of Hous. & Cmty. Renewal, 35 NY3d 332, 426, n 7 .)
In the context of asserting a cognizable claim or defense of fraud, "[t]he elements . . . must be pleaded, and each element must be set forth in detail." (CPLR 3016 [b]; Gridley v Turnbury Vill., LLC, 196 AD3d 95, 102 [App Div, 2d Dept 2021], lv denied No. 2021-567, 2021 WL 5898137 (NY, Dec. 14, 2021), quoting Matter of Regina Metro. Co., LLC, 35 NY3d 332 , and citing 699 Venture Corp. v Zuniga, 69 Misc 3d 863 [Civ Ct, Bronx County 2020] [in each case the court found that the CPLR 3016 pleading requirements had not been met].)"[A]llegations of fraud based upon speculation are insufficient." (Id. at 102.)
Here, respondent has pleaded six of the eight factors to support her claim of illusory tenancy "upon information and belief." (NYSCEF Doc No. 10, ¶¶ 10-17.) Respondent has not stated the basis for her information and belief regarding her allegations, e.g. conversations with the JMS employees, conversations with the petitioner, requests for apartment registration records from the Division of Housing and Community Renewal which she should be able to obtain as a named respondent in an eviction proceeding related to the premises. Speculative allegations made "upon information and belief" do not state facts; and allegations of fraud made upon information and belief are wholly insufficient. (See e.g. Gade v. Carmili, 68 Misc 3d 1204 [A], 2020 NY Slip Op 50860 [U] *4, [Sup Ct, New York County 2020), affd, 198 AD3d 456 [1st Dept 2021] ["Respondent's allegations are deficient because they are pled entirely upon information and belief . . . and [s]tatements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud' "]; New York Univ. v Cont'l Ins. Co., 87 NY2d 308, 309  ["nor is a fraud claim supported by plaintiff's conclusory allegations that defendants were engaged in a scheme . . ."].) The allegations that are not made upon information and belief do not plead an illusory tenancy.
Discovery in a Summary Proceeding Pursuant to CPLR 408
The court recognizes the difficulty in some cases of demonstrating, without discovery, a fraudulent illusory tenancy scheme to circumvent the rent stabilization laws. Notwithstanding that the burden of pleading a meritorious cause of action is much lower than prevailing on a cause of action at trial, a pleading must still aver to facts that support a cause of action or defense. (Id.) In some cases, and in courts other than Housing Court, judgment on issues of fraudulent schemes to evade rent stabilization laws has been found unwarranted pre-discovery. (Montera v KMR Amsterdam LLC, 193 AD3d 102, 110 [1st Dept 2021, Gische, J., dissenting] [disagreeing that the case should proceed on the theory of fraud as fraud in the context of rent stabilization disputes is subject to the same rigor as any common-law fraud case].)
However, discovery in a summary proceeding is available only by leave of court. (CPLR 408.) And there must be "ample need" for discovery related to a cause of action or defense. (New York Univ. v Farkas, 121 Misc 2d 643, 647 [Civ Ct, New York County 1983].) In Housing Court, discovery is inextricably entwined with proper pleading. "A.fishing expedition utilized by the landlord for the purposes of formulating a cause of action or by the tenant to establish [facts to support] a defense, should never be permitted." (Farkas, 21 Misc 2d at 647.)1
Respondent has submitted a sworn affidavit to supplement her answer which the court may consider to remedy defects in her pleading. (NYSCEF Doc No. 14, Lawlor affidavit; Ray v Ray, 108 AD3d 449, 452 [1st Dept 2013].) However, even considering respondent's affidavit in the light most favorable to her, she has not pleaded material facts within her personal knowledge to establish a cause of action for entitlement to the protections of the rent stabilization laws based on a fraudulent illusory tenancy scheme.
While respondent clearly wishes to assert an illusory tenancy scheme, and petitioner is certainly on notice that this is what respondent wishes to prove, the court cannot infer from her pleading that she has a cause of action based on a fraudulent illusory tenancy scheme. (See e.g. Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559  ["Here, whether the claim is labeled fraud . . . we conclude that neither the allegations in the complaint nor the surrounding circumstances give rise to a reasonable inference that [defendant] participated in a scheme to defraud or knew about [the fraud]".)
Crucially, respondent does not claim to be a subtenant in her affidavit or provide any details of a subtenancy agreement, either oral or written. As pleaded, respondent is at best a licensee of Patrick McDonald, her ex-boyfriend, who has vacated the apartment; not petitioner's subtenant. This alone is grounds to grant petitioner's motion to strike her first affirmative defense. Respondent points to no authority, appellate or otherwise, which supports the proposition that a licensee has standing to assert entitlement to protection of the rent stabilization laws as a result of an illusory tenancy. Indeed, the only authority this court could locate is Sapp v Clark Wilson, Inc., 206 AD3d 1014 (2d Dept 2022). In Sapp the Appellate Division Second Department affirmed the lower court, noting that "the Supreme Court concluded that the appellants did not have standing to seek vacancy leases because they were licensees, not subtenants (emphasis added)." (Id. 1016.) On appeal, the court affirmed the lower court on other grounds, and did not reach this issue. (Id.)
While "unassailable proof" of fraud is not required at the pleading stage, it is not "impossible [for respondent] to state in detail" the basis for this essential element. (Pludeman v N. Leasing Sys., Inc., 10 NY3d 486, 492 .) Respondent's affidavit states that she "believe[s]" many things, and that she does "not know" others. Respondent is presumably able to ask her ex-boyfriend about many significant factors and documents such as oral or written sublease agreements, rent payments, etc. These items are not in petitioner's exclusive possession and control. Notably, it is not disputed respondent's ex-boyfriend lives next door to her. (NYSCEF Doc No. 38, Hoffman affidavit ¶3; NYSCEF Doc No.40, DHCR registration, JMS exhibit 40; NYSCEF Doc No. 44, Patrick McDonald's current renewal lease.)
As for the relationship between JMS and/or the petitioner to the purported illusory tenancy scheme, respondent does not specify or plead facts with regard to who colluded with whom, or why she suspects collusion. That agents of JMS have "interacted with" respondent and the "current superintendent . . . knows that [respondent] live[s] in the subject apartment" may indicate one factor, constructive knowledge, but alone it does not demonstrate collusion. (NYSCEF Doc No. 14, Lawlor affidavit ¶ 14.) Neither does respondent claim that petitioner overcharged her, nor, as stated above, not does she claim that she ever entered into an agreement to pay rent to petitioner or how much her rental agreement states she must pay and to whom. Indeed, respondent does not aver to have paid "rent" to anyone, even directly to JMS, which might suggest that petitioner was not exercising dominion and control over the apartment. (Vallejo at 878.) In fact, petitioner has recently paid rent to JMS with her personal checks in the exact amount of her most recent renewal lease. (NYSCEF Doc Nos. 41, 43, JMS exhibits C and E; 270 Riverside Drive, Inc. v Wilson, 195 Misc 2d 44, 46 [Civ Ct, New York County 2003].)2 Finally, respondent does not state or aver that she reasonably expected to continue in possession indefinitely as a rent-regulated tenant in her own right, let alone why she might have had such an expectation. (Id.) Respondent's affidavit is inadequate to rehabilitate her unverified answer which does not plead a cause of action sounding in fraudulent illusory tenancy scheme. It necessarily follows that respondent cannot demonstrate ample need for discovery related to a cause of action pursuant to CPLR 408. (See e.g. 57 Elmhurst, LLC v Williams, 68 Misc 3d 215 [Civ Ct, Queens County 2020], quoting Farkas, 121 Misc 2d at 647.)
Respondent's Motion to Implead JMS
CCA 110 (d) provides in relevant part: In any of the actions or proceedings specified in subdivision (a) of this section and on the application of any party, any city department or the court, on its own motion, may join any other person or city department as a party in order to effectuate proper housing maintenance standards and to promote the public interest. While the court may have jurisdiction under CCA 110 (d) to join JMS into this proceeding to "promote the public interest,"3 for the reasons set forth above regarding petitioner's motion to strike respondent's illusory tenancy defense, respondent's motion to implead JMS in order to assert a cross-claim and conduct discovery is denied.4
The court notes that the only amendment to respondent's proposed answer is a cross-claim against JMS to enjoin JMS to offer respondent a renewal lease in the event that she prevails in this proceeding. Such an injunction would exceed this court's jurisdiction. (See Vignola v JDM Washington St. LLC, 74 Misc 3d 1227 [A] [Sup Ct, New York County 2022] citing N. Waterside Redevelopment Co., L.P. v Febbraro, 256 AD2d 261 [1st Dept 1998].)
Accordingly, it is
ORDERED that respondent's motion to implead JMS is DENIED; and it is further
ORDERED that petitioner's motion to strike respondent's first affirmative defense is GRANTED as the defense is not sufficiently pleaded, without prejudice to respondent raising a sufficiently pleaded claim in another forum or another summary proceeding.
The entirety of the relief requested in the parties' notices of motion has hereby been addressed.
This constitutes the decision and order of the court.
January 12, 2023
New York, NY
HON. KAREN MAY BACDAYAN
Judge, Housing Part
1. Respondent is not without a remedy. She could commence an action in Supreme Court to obtain complete relief comprising a declaration that she is the "real" rent stabilized tenancy, and an order enjoining JMS to offer her a proper rent stabilized lease.
2. The court makes no finding as to petitioner's intentions, which may be revealed in the illegal sublet holdover proceeding that JMS states it intends to commence. NYSCEF Doc No. 42, notice to cure. However, regardless of the merits of the illegal sublet proceeding JMS intends to commence against petitioner, respondent has not pleaded facts necessary to assert her independent right to a rent stabilized lease.
3. See Thornton v Baron, 5 NY3d 175, 182 (2005) (finding an illusory tenancy despite the unclean hands of the subtenant not " 'so that one wrongdoer may benefit at the expense of another' . . . but so that no wrongdoer may benefit at the expense of the public (emphasis added)."
4. The court notes that the only amendment to respondent's proposed answer is a cross-claim against JMS to enjoin JMS to offer respondent a renewal lease in the event that she prevails in this proceeding. Such an injunction would exceed this court's jurisdiction. (See Vignola v JDM Washington St. LLC, 74 Misc 3d 1227 [A] [Sup Ct, New York County 2022] citing N. Waterside Redevelopment Co., L.P. v Febbraro, 256 AD2d 261 [1st Dept 1998].)
Karen May Bacdayan, J.