Jorge A. Najera-Ordonez et al. v 260 Partners L.P. et al.
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Attorneys and Parties
Brief Summary
Residential real estate and rent regulation. The dispute concerned whether a landlord that received J-51 tax benefits knowingly engaged in a fraudulent scheme to deregulate rent-stabilized apartments, in violation of the Rent Stabilization Law and Code amendments (L 2024, ch 95) [require courts to evaluate, under the totality of the circumstances, whether a landlord knowingly engaged in a fraudulent scheme to deregulate apartments, whether before or after Roberts].
The lower court denied plaintiffs' second motion for summary judgment as to liability for all 31 apartments.
The Appellate Division modified the order by granting plaintiffs summary judgment on liability as to the eight apartments deregulated after Roberts v Tishman Speyer Props., L.P. (13 NY3d 270 [2009]) and by rejecting the lower court's reliance on law of the case as to the remaining 23 apartments.
The appellate court held that the undisputed evidence showed a knowing fraudulent deregulation scheme for the eight post-Roberts apartments because defendants were aware Roberts barred deregulation while receiving J-51 benefits, yet still deregulated those units and later re-registered some at improper rents. As to the 23 pre-Roberts apartments, however, plaintiffs did not eliminate triable issues of fact under the totality-of-the-circumstances standard, so a trial was required.
Background
Plaintiffs challenged the deregulation of 31 apartments in a Manhattan building at 260 Convent Avenue. It was undisputed that the owner had improperly deregulated apartments while receiving J-51 tax benefits. Twenty-three apartments were deregulated before the Court of Appeals decided Roberts in 2009, and eight were deregulated afterward. Plaintiffs moved for summary judgment on liability, relying on Division of Housing and Community Renewal (DHCR) rent histories, unexplained rent increases, deregulation riders given to tenants, and testimony from Mitchell Rothken, a manager for the building's managing agent, showing awareness of Roberts and delay in restoring apartments to regulated status until 2016. Plaintiffs also pointed to DHCR's 2016 J-51 initiative guidance, which stated that re-registered legal regulated rent could not exceed the actual rent being paid and warned that fraudulent deregulation schemes could result in greater penalties.
Lower Court Decision
Supreme Court, New York County, denied plaintiffs' motion for summary judgment in its entirety. It concluded that plaintiffs were not entitled to judgment on liability and, with respect to the 23 apartments deregulated before Roberts, it treated prior appellate rulings as law of the case requiring denial.
Appellate Division Reversal
The Appellate Division modified. It granted plaintiffs summary judgment as to liability for the eight apartments deregulated after Roberts because plaintiffs made a prima facie showing of a knowing fraudulent scheme and defendants failed to raise a triable issue of fact. The court otherwise affirmed denial of summary judgment for the 23 apartments deregulated before Roberts, but held that the motion court erred in relying on law of the case. Because the 2024 rent law amendments changed the governing framework, prior appellate rulings did not bar reconsideration. The matter was remanded for a trial on whether defendants knowingly engaged in a fraudulent scheme as to those 23 apartments under the totality of the circumstances.
Legal Significance
The decision applies the 2024 amendments to the Rent Stabilization Law and Code (L 2024, ch 95) [require courts to assess fraudulent deregulation under the totality of the circumstances] and confirms that this standard governs both pre-Roberts and post-Roberts deregulations. It also underscores that sophisticated landlords cannot rely on claimed uncertainty after Roberts to justify continuing deregulation while receiving J-51 benefits. At the same time, the court distinguished pre-Roberts conduct, holding that improper deregulation and delayed re-registration alone do not automatically establish fraud as a matter of law.
When a landlord knew Roberts prohibited deregulation during J-51 benefits and still deregulated apartments afterward, summary judgment on liability may be appropriate. But for apartments deregulated before Roberts, courts must examine the full record at trial unless the plaintiff's evidence conclusively proves a knowing fraudulent scheme.