Nichole Fabo, et al. v. 89 Hicks Street, LLC
Attorneys and Parties
Brief Summary
New York rent-stabilization and rent-overcharge litigation, specifically whether tenants may amend a class action complaint to seek use of the rent-overcharge "default formula" under Rent Stabilization Code (9 NYCRR) § 2522.6(b)(3) [default formula used to compute legal regulated rent and overcharges when the base date rent cannot be determined or certain improper rental practices occurred].
The Supreme Court, Kings County, denied the tenants' motion under CPLR 3025(b) [rule governing leave to amend pleadings], holding that its prior summary judgment ruling rejecting use of the default formula was law of the case.
The Appellate Division reversed the order insofar as appealed from and granted leave to amend the complaint to add a claim that overcharges should be calculated using the default formula.
The proposed amendment relied on a different legal theory than the one previously rejected, was supported by a Division of Housing and Community Renewal (DHCR) determination in a similar case, was not palpably insufficient or patently devoid of merit, and caused no prejudice or surprise to the defendant.
Background
The plaintiffs were tenants at 89 Hicks Street in Brooklyn and brought a class action against the building owner alleging, among other things, that the owner failed to register the apartments as rent stabilized with the Division of Housing and Community Renewal (DHCR) and collected rent overcharges. After class certification, the plaintiffs moved for summary judgment and sought appointment of a referee to compute overcharges using the default formula under Rent Stabilization Code former § 2522.6(b)(2) and § 2522.6(b)(3). They initially argued that the default formula applied because the owner committed a proscribed rental practice that deprived tenants of rights under the code. The trial court rejected that theory in March 2023. The plaintiffs later moved to amend the complaint after a DHCR decision, In re Lucash, concluded that the default formula should be used under Rent Stabilization Code § 2522.6(b)(2)(i) [applicable where the rent charged on the base date cannot be determined] when apartments were temporarily exempt on the base date.
Lower Court Decision
The Supreme Court denied leave to amend under CPLR 3025(b), reasoning that its earlier ruling rejecting application of the default formula controlled as law of the case. As a result, the plaintiffs were not permitted to add a claim expressly alleging that the legal regulated rents and overcharges should be calculated using the default formula based on the inability to determine the base date rent.
Appellate Division Reversal
The Appellate Division held that it was not bound by the law of the case doctrine and reviewed the amendment request on the merits. Applying the liberal amendment standard, the court found that the proposed claim was not palpably insufficient or patently devoid of merit because it advanced a different rationale for default-formula relief and was supported by a similar DHCR ruling. The court also found no prejudice or surprise to the defendant. It therefore reversed the order insofar as appealed from and granted the plaintiffs leave to amend the complaint.
Legal Significance
The decision reinforces that leave to amend under CPLR 3025(b) should be freely granted absent prejudice or surprise, even after an earlier adverse ruling, when the amendment asserts a different and colorable legal theory. It also recognizes that a DHCR interpretation may supply sufficient merit for pleading purposes in rent-stabilization disputes involving temporarily exempt apartments and uncertainty as to the base date rent.
In New York rent-overcharge cases, tenants may still amend their pleadings to pursue the default formula when a new, nonfrivolous theory is supported by DHCR guidance, and a prior ruling on a different theory does not automatically bar amendment as law of the case.