Armstrong v Dumbo Lofts Rental, LLC
Attorneys and Parties
Brief Summary
New York residential landlord-tenant and rent stabilization law, specifically whether a landlord unlawfully deregulated apartments in a building receiving J-51 tax benefits and charged unlawful rent overcharges.
The Supreme Court, Kings County, held that the tenants had not shown reliance on the landlord's alleged deceptive acts and, without the elements of common-law fraud, could not establish a fraudulent deregulation scheme. It granted summary judgment dismissing the fraudulent-scheme, rent-freeze, and rent-stabilization declaration claims as to these appellants.
The Appellate Division reversed the order insofar as appealed from and denied the landlord's motion for summary judgment on the tenants' claims alleging a fraudulent scheme to deregulate, seeking a rent freeze, and seeking a declaration that their tenancies are subject to the Rent Stabilization Law and Rent Stabilization Code.
The landlord failed to make a prima facie showing of entitlement to judgment as a matter of law. Its chief financial officer's affidavit was conclusory and self-serving, did not eliminate fact issues about a fraudulent deregulation scheme, did not show the annual rent registrations were proper and timely, and the landlord had conceded that the apartments were rent stabilized. The court also clarified that tenants need not prove every element of common-law fraud, including reliance, to invoke the fraud exception.
Background
The defendant owns a Brooklyn residential building that received J-51 tax abatement benefits from 2000 to 2014. The appellants became tenants of different apartments in the building during that period. In 2019, they sued, alleging that the defendant and its predecessor used a fraudulent scheme to remove their apartments from rent stabilization and charge inflated rents. According to the amended complaint, the owners listed inflated legal regulated rents and lower so-called preferential rents in leases and registrations filed with the Division of Housing and Community Renewal (DHCR), even though the tenants were not actually receiving preferential rents. The tenants also alleged that the owners failed to disclose the correct legal regulated rents, omitted required J-51 notices and expiration information from leases and renewals, falsely claimed the apartments were no longer rent stabilized, offered market-rate nonstabilized leases, and imposed increases above those allowed by the Rent Stabilization Law. The action sought declaratory relief, calculation of lawful rents, and damages for rent overcharges. The opinion discussed the pre-Housing Stability and Tenant Protection Act framework, including CPLR former 213-a [former four-year statute of limitations for rent overcharge claims], Administrative Code of the City of New York former § 26-516(a)(2) [former provision barring recovery based on overcharges occurring more than four years before the complaint], and the limited fraud exception allowing review of rental history outside the lookback period where there is a colorable claim of a fraudulent deregulation scheme.
Lower Court Decision
Before discovery, the landlord moved for summary judgment dismissing the amended complaint. The Supreme Court, Kings County, granted the motion in relevant part as to these appellants. It reasoned that the tenants had not alleged reliance on deceptive conduct and therefore could not establish fraud-based deregulation. It dismissed the claims alleging a fraudulent scheme to deregulate the apartments, the request for a rent freeze, and the request for a declaration that the appellants' tenancies were subject to the Rent Stabilization Law and Rent Stabilization Code.
Appellate Division Reversal
The Appellate Division reversed insofar as appealed from. It held that a tenant alleging a fraudulent deregulation scheme need not prove every element of common-law fraud, including reliance, citing Burrows v 75-25 153rd St., LLC. Applying the summary judgment standard, the court found that the landlord failed to establish prima facie that it did not engage in a fraudulent scheme to destabilize the apartments because its evidence consisted mainly of a conclusory and self-serving affidavit from its chief financial officer. The court also held that the landlord failed to show entitlement to dismissal of the rent-freeze claim because its submissions did not eliminate triable issues as to whether annual registration statements were proper and timely under Administrative Code of the City of New York § 26-517(e) [provision requiring proper and timely annual rent registrations, with failure potentially supporting a rent freeze]. Finally, because the landlord conceded that the apartments were rent stabilized, the court held that summary judgment dismissing the declaratory judgment claim should not have been granted.
Legal Significance
The decision reinforces that, in rent overcharge and deregulation cases, the fraud exception to the four-year lookback rule does not require tenants to plead or prove all elements of common-law fraud. A colorable claim supported by indicia of fraud is enough to permit inquiry into older rental history. It also underscores that landlords moving for summary judgment must affirmatively negate allegations of fraudulent deregulation and registration defects with competent evidence; conclusory affidavits will not suffice. The case further confirms that where a landlord concedes rent-stabilized status, dismissal of a claim seeking a declaration of that status is improper.
A landlord cannot win summary judgment in a rent-stabilization deregulation case by arguing only that tenants failed to show reliance or traditional fraud. If the landlord's proof does not conclusively disprove a fraudulent deregulation scheme or proper rent registrations, and the landlord even concedes the apartments are rent stabilized, the tenants' fraud-exception, rent-freeze, and declaratory claims must remain in the case.