Opinion
Index No. 15300/2014
08-15-2024
YOLANDE I. NICHOLSON, Plaintiff, v. 125 COURT STREET LLC, et al., Defendants.
Unpublished Opinion
HON. WAVNY TOUSSAINT, JUSTICE.
The following e-filed papers read herein: NYSCEF Nos.:
Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed 7-57, 94-107
Opposing Affidavits (Affirmations)63-91, 111-114
Affidavits/ Affirmations in Reply 109-110, 115-120
Other Papers_ 121-129
Upon the foregoing papers, defendants 125 Court Street LLC (125 LLC), Two Trees Management Co. (Two Trees), David C. Walentas (David) and Jed Walentas (Jed) move for an order (a) pursuant to CPLR 3212 (b), granting summary judgment dismissing the complaint, with prejudice and (b) pursuant to CPLR 3214, staying discovery pending resolution of this motion (Motion Seq. 8). By separate order to show cause, defendants move for an order directing plaintiff to pay use and occupancy for the subject apartment at a certain rate beginning five days after plaintiff is restored to possession in accordance with the order, dated March 22, 2024, entered in the underlying holdover proceeding (125 Court Street LLC v Yolande Nicholson, et al, Index No. LT-063946-10/KI [the Holdover Proceeding]), with such interim use and occupancy payments to continue every month thereafter, pendente lite, pending further order of this court, and directing that plaintiff abide by all other terms and conditions set forth in her initial lease dated March 8, 2005 (Motion Seq. 9).
Plaintiff commenced this action seeking, among other relief, rent overcharge damages stemming from her occupancy of an apartment in a residential building owned by 125 LLC. Plaintiff took occupancy of the apartment pursuant to an initial rent stabilized lease dated March 8, 2005 for a two-year term commencing on May 1, 2005 at a monthly rent of $2,933.00. The "Temporary Rent Concession Rider" signed by plaintiff along with the lease indicated that the legal regulated rent for the apartment was $8,000.00 and that the $2,933.00 rate constituted a lower preferential rent. Upon expiration of the initial lease, plaintiff signed a two-year renewal lease at a monthly rent of $3,576.00. Upon expiration of the first renewal lease, 125 LLC offered a second renewal lease for a one or two-year term commencing on June 1, 2009 at a monthly rent of $4,276.00. Plaintiff did not sign the second renewal lease and occupied the apartment as a holdover month-to-month tenant, continuing to pay the monthly rent of $3,576.00 as stated in the first renewal lease.
This renewal rate amounted to a nearly 22% increase from the initial rent.
In February 2010, 125 LLC commenced the Holdover Proceeding in Civil Court, Kings County alleging that the subject apartment was rent-stabilized and that plaintiff failed to sign a renewal lease. The petition did not specify that the apartment's rent stabilized status was due to 125 LLC's receipt of a tax abatement pursuant to Real Property Tax Law [RPTL] § 421-a, which required the initial rent charged for each apartment to be registered as the initial legal regulated rent. On June 10, 2010, plaintiff entered into a stipulation in which she admitted owing $22,423.21 in rent through June 30, 2010. The stipulation provided for a purported waiver of past rent in the amount of $9,532.18 and for plaintiff to surrender the apartment by September 30, 2010. A final judgment was entered, pursuant to the stipulation, awarding 125 LLC possession of the apartment and $12,891.03 in rent. An amended stipulation, entered into on July 27, 2010, decreased the rent award by $891.03.
Plaintiff thereafter sought to vacate the stipulations on certain grounds. Following a lengthy procedural history which need not be recounted here, the Appellate Term, Second Department issued an order, dated December 20, 2019, which vacated the stipulations, dismissed the holdover petition and remitted the matter to Civil Court for a determination of the branch of plaintiffs motion seeking to be restored to possession of the apartment following the joinder of the new tenant(s) in possession, if any (125 Ct. St., LLC v Nicholson, 67 Mise 3d 28, 28 [App Term, 2d Dept, 2d, 11th &13th Jud Dists 2019]). The Appellate Term's order, made upon a renewal motion by plaintiff, noted that in 2013, plaintiff obtained a letter dated June 14, 2011, sent by the New York City Department of Housing Preservation and Development (HPD) to 125 LLC's tax attorney. The letter stated that 125 LLC was the recipient of an RPTL 421-a tax abatement, that 256 units in the building were improperly registered with the Division of Flousing and Community Renewal (DHCR) as exempt and needed to be registered as rent-stabilized, and that the rents that were registered exceeded the amounts approved by HPD, which, pursuant to the abatement program, set the maximum legal rents for the building. The Appellate Term granted plaintiffs renewal motion based on her discovery, via the HPD letter, that 125 LLC had disregarded the rent stabilization laws and had claimed (in its DHCR registrations from 2005 through 2009, in the initial and renewal leases, in its petition, and, ultimately, in its representations to the Civil Court) false legal maximum rents and that it was charging plaintiff a "preferential rent," and further based on plaintiffs uncontroverted averment that the stipulations were entered into in reliance on 125 LLC's false representations and without either plaintiff or the Civil Court knowing the true legal rent. The Appellate Term stated:
"It is now undisputed that, although the petition did not so state, landlord had applied for and received an RPTL 421-a tax abatement, and that, pursuant to the terms of that program, tenant's apartment is subject to rent stabilization. Since tenant was the first occupant of the premises, in 2005, and the initial rent she paid was $2,933, that sum became the initial legal regulated rent and all subsequent legal rents should have been calculated from that base. From 2005 through 2009, landlord variously registered the apartment with DHCR as 'high rent vacancy' 'permanently exempt,' as rent-stabilized with a legal maximum rent of $8,000, and as charging tenant a 'preferential rent.' These registrations were false and, therefore, 'a nullity.' A landlord's failure to file a proper and timely annual rent registration statement results in the rent being frozen at the level of the legal regulated rent listed in the last preceding registration statement and, therefore, bars the landlord from collecting any rent in excess of that legal regulated rent until a proper registration is filed. Accordingly, the legal maximum rent remained at the initial legal rent, $2,933, for the entire relevant period. Not only did tenant owe no arrears at the time that she entered into the stipulations,
she had, in fact, overpaid. Moreover, the 2009 renewal lease that she refused to sign misstated the legal maximum rent and contained a proposed illegal rent of $4,276. Additionally, because that renewal lease failed to contain the notice that stabilization coverage would expire following the expiration of the tax benefit, tenant was entitled to the protection of rent-stabilized status for the duration of her tenancy" (125 Ct. St., LLC v Nicholson, 67 Mise 3d at 32-34 [App Term, 2d Dept, 2d, 11th &13th Jud Dists 2019][citations and internal quotation marks omitted]).
The Appellate Term's order was affirmed by the Appellate Division, Second Department (Matter of 125 Ct. St., LLC v Nicholson, 214 A.D.3d 723, 723 [2d Dept 2023]). By order of the Civil Court dated March 22, 2024, plaintiff was restored to possession of the apartment, with a stay in effect until April 22, 2024. Leave to appeal the Appellate Division's order was dismissed on constitutional grounds by the Court of Appeals, and a motion for a stay of plaintiffs restoration to possession of the apartment was dismissed as academic (Matter of 125 Ct. St., LLC v Nicholson, 41 N.Y.3d 1005 [2024]).
The instant action was commenced on October 28, 2014. In her complaint, plaintiff sets forth causes of action for a declaratory judgment that the subject apartment is rent stabilized (first), a declaratory judgment that defendants engaged in unlawful harassment (second), a declaratory judgment that the 2010 holdover proceedings were baseless (third), a declaratory judgment that defendants engaged in a "fraudulent scheme to harass" (fourth), fraudulent scheme to deregulate (fifth), rent overcharge (sixth), violation of the RSL (seventh), deceptive practices under General Business Law [GBL] § 349 (eighth), and punitive damages (ninth). On January 11, 2024, defendants brought the instant motion for summary judgment dismissing the complaint in its entirety.
"[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 eliminate any material issue of fact from the case (Smalls v AJI Indus., Inc., 10 N.Y.3d 733, 735 [2008] [internal quotation marks and citation omitted]). The "[f|ailure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers" (Winegrad v New York Univ. Med. Ctr., 64 N.Y.2d 851, 853 [1985]). CPLR 3212 (b) requires that a motion for summary judgment must be supported by, among other things, an affidavit "by a person having knowledge of the facts."
In support of their motion for summary judgment, defendants submit the affidavit of Richard Shill ("Shill"), who identifies himself therein as Chief Financial Officer of Two Trees. While Shill states that in his capacity as Chief Financial Officer he has "personal knowledge to state" that David and Jed have no ownership interests in 125 LLC and that he is "personally familiar with the facts and circumstances set forth" in his affidavit, he does not identify the sources or foundation from which he derives such knowledge or familiarity. To the extent Shill may rely on records of 125 LLC or Two Trees, he does not state that he is familiar with the record-keeping process of these entities as required by CPLR 4518 (a) (see generally Bank of N.Y. Mellon v Gordon, 171 A.D.3d 197, 205 [2d Dept 2019]). Defendants' attempt to remedy any defects in Shill's affidavit in their reply papers is improper and will not be considered (see Nationstar Mtge., LLC v Tamargo, 177 A.D.3d 750, 753 [2d Dept 2019]).
At any rate, even if the court were to accept the contents of Shill's affidavit, defendants have not eliminated all issues of fact as to plaintiffs claim of rent overcharge. Defendants' primary argument is that the statute of limitations in effect precludes consideration of rental history more than four years prior to the 2014 commencement of the instant action, and therefore the rent charged on the "base date" in 2010 ($3,576.00) must be deemed the legal regulated rent. Defendant contends that any claim of rent overcharge is without merit since plaintiff was never charged rent above this amount. However, the four-year lookback rule has "a limited common-law exception . . ., permitting tenants to use [ ] evidence [preceding the four-year period] ... to prove that the [landlord] engaged in a fraudulent scheme to deregulate the apartment" {Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal, 35 N.Y.3d 332, 354 [2020]). The rent registrations and leases submitted by defendants, which contain admittedly inflated "legal regulated rents," as well as the observations made by the Civil Court in the Holdover Proceeding, present an issue of fact as to whether defendants engaged in a fraudulent scheme to deregulate the subject apartment. Under a recent change in law, there no longer needs to be a finding that all of the elements of common law fraud, including evidence of a misrepresentation of material fact, falsity, scienter, reliance and injury, are satisfied in order to make a determination that a fraudulent scheme to deregulate a unit was committed if such scheme is apparent under the totality of the circumstances (L 2024, ch 95, § 4; see 1532-1609 Ocean Ave LLC v Hertzan, 2024 NY Slip Op 24180, *3 [Civ Ct, Kings County 2024]; 41-47 Nick LLC v Odumosu, 2024 NY Slip Op 24167, *3 [Civ Ct, NY County 2024]). Defendants have not established, as a matter of law, that the inclusion of the inflated legal regulated rents in the registrations and leases was a mere "mistake," rather than a willful attempt to charge above the proper legal regulated rents. Defendants' argument that Two Trees, as managing agent, is shielded from liability as the agent for a disclosed principal, is unavailing. Under RSC § 2520.6 (i), an agent is included in the definition of an owner, and a managing agent who participates in a fraudulent scheme is not shielded from liability (see Najera-Ordonez v 260 Partners, L.P., 217 A.D.3d 580, 581-582 [1st Dept 2023]).
Moreover, "[a] party should be afforded a reasonable opportunity to conduct discovery prior to the determination of a motion for summary judgment" (Salameh v Yarkovski, 156 A.D.3d 659, 660 [2d Dept 2017]; see Okula v City of New York, 147 A.D.3d 967, 968 [2d Dept 2017]; Brea v Salvatore, 130 A.D.3d 956, 956 [2d Dept 2015]). A Preliminary Conference Order was only first issued in this matter in September 2023 and discovery remains in its initial stages, with depositions directed to completed by dates later this year pursuant to the Compliance Conference Order dated January 16, 2024. Further discovery is needed to resolve issues relating to whether defendants' conduct was the result of a "mistake" or was part of a fraudulent scheme to deregulate.
Accordingly, defendants' motion for summary judgment is denied. All stays of discovery are vacated.
The Civil Court retained jurisdiction over the underlying Holdover Proceeding and recently restored plaintiff to possession of the apartment by order dated March 22, 2024. However, it is not known at this point whether plaintiff has taken or has been granted physical occupancy of the apartment, and this court defers the question of use and occupancy to the Civil Court, As a result, defendants' order to show cause for an award of use and occupancy is denied without prejudice to defendants to make the appropriate application before the Civil Court.
All other relief requested having been considered is denied. The foregoing constitutes the decision and order of the court.