Opinion
Index No. LT-319392-22/KI
11-29-2023
Temo Realty LLC, Petitioner, v. Berenilsee Marcia Herrera, HECTOR J. BACA GUTIERREZ, JOHN DOE, and JANE DOE, Respondents.
Kucker Marino Winiarsky & Bittens, LLP Attorneys for Petitioner Communities Resist Attorneys for Respondent
Kucker Marino Winiarsky & Bittens, LLP
Attorneys for Petitioner
Communities Resist
Attorneys for Respondent
Shantonu J. Basu, J.
Hon. Shantonu J. Basu, Judge, Housing Court
Recitation, as required by CPLR § 2219(a), of the papers considered in the review of Respondent's discovery motion (motion sequence 1). PAPERS NUMBERED
Notice of Motion, Affirmation & Exhibits Annexed 1, NYSCEF # 14-23
Petitioner's Affirmation and Affidavit in Opposition 2, NYSCEF # 25-29
Respondent's Affirmation in Reply 3, NYSCEF # 32
Upon the foregoing cited papers Respondent's motion seeking discovery is granted to extent discussed below.
FACTUAL AND PROCEDURAL BACKGROUND
This is a summary, "no grounds" holdover proceeding. Petitioner alleges that the apartment was deregulated due to high rent deregulation.
Respondent disputes this and, among other defenses, alleges both overcharge and a challenge to the regulatory status. On the basis of the challenge to the regulatory status, Respondent moves the court for discovery, to which Petitioner opposes.
LEGAL ANALYSIS
Respondent's motion raises two questions. First, should discovery be granted in this status challenge case? Second, if discovery is granted, what should be the scope of the discovery? The court addresses each question in turn.
a. Should discovery be granted?
In a summary proceeding, the party seeking discovery is required to obtain leave of court. When deciding whether to grant discovery, courts employ the ample need test first announced in New York Univ. v Farkas, 121 Misc.2d 643 (Civ Ct NY County 1983).
Under that test, the proponent of discovery must establish several factors not all of which need to be shown (Mautner-Glick Corp. v Higgins, 64 Misc.3d 16, 18 [App Term 1st Dept 2019] [noting that "courts consider a number of factors, not all of which need to be present in every case"]).
In its simplest form, the Farkas test requires the movant to show a genuine need for information that cannot be obtained other than from one of the parties in the case or from a third party (Farkas, supra, 121 Misc.2d at 647). If the movant can satisfy this requirement, then the court should grant discovery but prevent undue prejudice to the other side by limiting discovery and managing schedules for disclosure.
Since speed and economy are the underlying concerns, there are few obstacles to granting discovery if discovery will likely result in greater efficiency rather than less (See Malafis v Garcia, 2002 NY Slip Op 40180[U] [App Term 2d Dept 2002]).
Recent cases have further streamlined the Farkas test with this policy in mind. For example, 50th St. HDFC v Abdur-Rahim evaluates whether granting discovery will speed a case towards a fair resolution, whether by stipulation or trial (50th St. HDFC v Abdur-Rahim, 72 Misc.3d 1210 [A], 2021 NY Slip Op 50693[U] [Civ Ct Kings County 2021]).
In other words, the modern approach to discovery in eviction proceedings requires the court to determine whether the movant has established a genuine need for disclosure and whether granting disclosure will create more efficiency. If the answer to these questions is yes, then the court should grant discovery but avoid prejudice by crafting an order that limits the discovery (see, e.g., 717 Sterling Corp. v. Cook, 2023 NY Slip Op 50345[U] [Civ Ct Kings County 2023]).
The court starts with the proposition that where a tenant asserts a challenge to an apartment's regulatory status, discovery is technically "unlimited." Although as discussed below this is not literally true, it is a good place to begin the analysis.
"Regardless of its age, an apartment's rent history is always subject to review to determine whether a unit is rent-stabilized" (Kostic v DHCR, 188 A.D.3d 569 [1st Dept 2020]).
This rule dates back to at least 2005 and has been followed ever since (see East West Renovating Co. v DHCR, 16 A.D.3d 166, 167 [1st Dept 2005] ["DHCR's consideration of events beyond the four-year period is permissible if done not for the purpose of calculating an overcharge but rather to determine whether an apartment is regulated."]; see also Gersten v 56 7th Ave. LLC, 88 A.D.3d 189, 199 [1st Dept 2011] [holding that "a tenant should be able to challenge the deregulated status of an apartment at any time during the tenancy" and that "landlords must prove the change in an apartment's status from rent-stabilized to unregulated even beyond the four-year statute of limitations for rent overcharge claims"]).
In AEJ 534 E. 88th, LLC v DHCR, the Appellate Division observed that the Court of Appeals "carefully distinguished between those actions that present 'challenges to the deregulated status of an apartment' as opposed to those concerning overcharge claims. In making that distinction the Court observed that the RSL has long placed a time limitation (i.e., statute of limitations, CPLR 213-a) on the look back period that applies to overcharge claims. There is no corresponding restriction in either the former or current version of RSC 2526.1(a)(3)(iii). Indeed, there is no time restriction at all" (AEJ 534 E. 88th, LLC v DHCR, 194 A.D.3d 464, 469-70 [1st Dept 2021] [ citing Regina Metro. Co., LLC v DHCR, 35 N.Y.3d 332, 351 (2020)] [internal citations omitted]).
There is a statute of limitations with respect to overcharge claims, which can be set aside upon a showing of a colorable claim of fraud. Conversely, there is no statute of limitations with respect to a status challenge, and the tenant does not have to allege fraud. Confusion arises because tenants will often state both a status challenge and an overcharge claim based on alleged fraud, and the standards for granting discovery are different depending on whether the issue is viewed through the lens of fraud or the lens of a status challenge.
That is the situation in the instant case. Respondent has articulated a challenge to the regulatory status and has alleged fraud. However, as Petitioner's opposition points out, Respondent has not properly pleaded fraud. In the context of landlord-tenant practice, a proper allegation of fraud requires that the tenant plead five elements: (1) a representation of material fact by the landlord; (2) that the representation was false; (3) that the landlord should have known that the representation was false, that is the landlord had "scienter," meaning a mental state consisting in an intent to deceive, manipulate, or defraud; (4) that the tenant relied upon the false material misrepresentation; and (5) the tenant suffered injury as a result (Burrows v 75-25 153rd Street LLC, 215 A.D.3d 105, 109 [App Div 2023]).
The tenant must plead these five elements in detail (601 W. Realty, LLC v Algarin, 76 Misc.3d 1228 [A], 2022 NY Slip Op 51072[U] [Civ Ct NY County 2022]; Nick LLC v Odumosu, __ N.Y.S.3d __, 2023 NY Slip Op 23311 [Civ Ct NY County 2023]).
Respondent's answer alleges "a fraudulent scheme to mislead the Respondents as to the lawful regulatory status of their tenancies by falsely filing incorrect registrations in preparation for bringing this proceeding" (NYSCEF # 6, ¶¶ 39 - 46). But the answer does not allege reliance in enough detail to satisfy the requirements of Burrows, Algarin, and related authority.
While Petitioner is correct that Respondent did not properly allege fraud or state colorable claim of fraud, this does not mean that Respondent cannot obtain discovery. Indeed, in light of Kostic and AEJ 534 E. 88th, LLC, it is clear that, upon a good faith challenge to the regulatory status of an apartment, a court may grant discovery going as far back as necessary. The tenant need not allege fraud, much less demonstrate a colorable claim of fraud. A good faith challenge to the regulatory status of the apartment and a showing of ample need under Farkas is sufficient for a court to grant discovery to a tenant. Put in other terms, the scope of discovery in a status challenge is not limited except by ample need.
Good faith is required in every aspect of practice. This is an ancient principle and applies to requests for discovery (see, e.g., W. Ivory Button Co. v Silverberg Import Co., 170 NYS 56, 57 [App Term 1st Dept 1918] [observing that "[t]he question [is] whether, under all the circumstances of the case, the examination is sought in good faith or merely to harass the party to be examined"]). The requirement of good faith has been expressed in different ways. For example in TJA Realty, LLC v Hermosa it was sufficient that the "tenant's answer took issue with the petition's allegation that the building is not subject to rent regulation," and thus "it was landlord's threshold burden to prove its claim" (TJA Realty, LLC v Hermosa, 56 Misc.3d 130 [A], 2017 NY Slip Op. 50858[U] [App Term 2017]). Obviously discovery should be denied if a tenant merely "takes issue" with an apartment's regulatory status in a recently constructed two-family home. This is implicit in the first prong of the Farkas test.
Respondent's second affirmative defense (NYSCEF # 6, ¶¶ 12-15) sets forth a good faith challenge to the regulatory status of the subject premises.
Although Respondent's motion for discovery is not supported by an affidavit, the answer is verified. Therefore, an affidavit is not required ( Clinton-178 Towers LLC v Chapple, 58 Misc.3d 198, 206 [Civ Ct Bronx County 2017] [granting discovery despite the absence of an affidavit because "a verified pleading may be substituted for an affidavit in many circumstances where the latter is required"]).
Moreover, Respondent's claim is supported by documentary evidence in the form of a DHCR rent history printout. The DHCR printout shows "registrations not found" from 1984 to 2012. There are other curiosities, such as the fact that the registrations for 2013 to 2017 were all filed in 2021 (NYSCEF # 18). By itself, the DHCR printout would perhaps be insufficient to justify a grant of discovery on the basis of an overcharge claim, but it does serve to show that Respondent has a good faith challenge to the regulatory status of the apartment.
The documents relevant to this challenge are in Petitioner's hands. Questions of whether claimed renovations actually occurred cannot be addressed at trial in the heat of cross-examination, and Respondent cannot frame a defense, or intelligently decide to settle, without examining these documents prior to trial. Thus Respondent is entitled to discovery with respect to the claim of improper deregulation.
However, while discovery as to status has no temporal limitation, discovery in a summary proceeding is always limited by CPLR § 408, the ample need test, and the requirement that the court craft orders that limit undue prejudice. Thus, the question becomes what should be the scope of discovery.
b. What should be the scope of discovery?
Respondent has requested documents dating from 2000 that fall into eight categories (NYSCEF # 23).
In summary form these are: (1) the leases for the apartment; (2) registration filings; (3) rent receipts and statements; (4) proof of repairs and improvements to the apartment; (5) documents related to an assessment of rents that could be charged; (6) DHCR registrations; (7) MCI and IAI applications with DHCR, and the like; and (8) evidence of rents charged.
Items (2) and (6) are roughly similar, as are items (3) and (8). Thus, the request probably reduces to only six categories of documents.
This request is reasonable. Whether it is six or eight categories, the production of these documents will not unduly prejudice Petitioner. The affidavit of Petitioner's agent does not state that these documents would be difficult to copy and produce.
However, Respondent does not explain why documents dating back to 2000 would be relevant to issues in this proceeding. In order to limit prejudice to Petitioner, the court finds that the relevant period starts January 1, 2011 and ends on the date that Respondent took occupancy.
This timeframe is appropriate because Petitioner's affidavit states that, prior to his purchase of the building, the apartment was used used by the former owners and their family (NYSCEF # 26, ¶ 7).
The DHCR rent history printout reflects Petitioner registered the apartment as having been owner occupied in 2013 (NYSCEF # 18).
Thus it makes sense that disclosure should begin in 2011 since this is two years prior to the date that, according to DHCR records, the prior owner's use commenced. Thus disclosure will shed light on whether the apartment was previously leased to a tenant who was not a family member. Although the deregulation event likely occurred after Petitioner bought the building it is fitting to grant discovery to just prior to the deregulation event to ensure that Respondent receives the information necessary to investigate her claim while also protecting Petitioner from the expansive demands that Respondent requested.
In similar cases courts have awarded much greater scopes of discovery (cf., supra, 601 W. Realty, LLC v Algarin, 76 Misc.3d 1228 [A], 2022 NY Slip Op 51072[U], * 2 [granting discovery back to 1988]).
However, in the instant proceeding 2011 is an appropriate starting point. In the event that the documents reveal something unexpected, Respondent may seek supplemental discovery, to which Petitioner may oppose.
CONCLUSION
For the reasons stated above, Respondent is granted leave conduct discovery as to documents within Petitioner's custody and control as stated in Respondent's demand for discovery (NYSCEF # 23). Provided however, the period is limited to January 1, 2011 to the date Respondent's lease commenced.
These documents are to be forwarded to Respondent's counsel, or otherwise made available, along with an affidavit as to their completeness and veracity, within 45 days of the date of this order.
If any of the documents are not within Petitioner's custody and control, then Petitioner must forward an affidavit to this effect but still provide whatever documents are within Petitioner's custody and control.
The proceeding is marked off calendar pending the completion of discovery. The proceeding may be restored upon notice of motion to counsel or by joint stipulation after securing an available date from court staff.
This constitutes the decision and order of this court.