41-47 Nick LLC v Odumosu

[*1] 41-47 Nick LLC v Odumosu 2023 NY Slip Op 23311 Decided on October 12, 2023 Civil Court Of The City Of New York, New York County Bacdayan, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on October 12, 2023
Civil Court of the City of New York, New York County

41-47 Nick LLC, Petitioner,

against

Peter Odumosu, Respondent.



Index No. 320222-22



Todd Rothenberg, Esq., for the petitioner

Manhattan Legal Services (Erica Braudy, Esq.), for the respondent
Karen May Bacdayan, J.

Recitation, as required by CPLR 2219 (a) of the papers considered in review of this motion by NYSCEF Doc Nos: 8-19.

PROCEDURAL POSTURE AND BACKGROUND

This is a nonpayment proceeding commenced on December 29, 2022, with petitioner's filing of a notice of petition and petition. (NYSCEF Doc Nos. 2 and 1, respectively.) It is not disputed that Peter Odumosu ("respondent") is a senior citizen who has resided in the apartment since May 1997. Respondent filed an answer to the proceeding without counsel on March 2, 2023. (NYSCEF Doc No. 4.) On May 11, 2023, respondent appeared by an attorney through the Universal Access to Counsel program ("UAC"), and filed an amended answer without objection from petitioner that same day. (NYSCEF Doc No. 7, amended answer.)

The answer asserted numerous defenses including fraudulent overcharge, defective rent demand, improper lease, failure to provide a five-day notice pursuant to Real Property Law ("RPL") § 235-e (d); defective rent demand; the Tenant Safe Harbor Act ("TSHA"); breach of the warranty of habitability; rent impairing violations pursuant to Multiple Dwelling Law ("MDL") § 302-a; and prior action pending. The answer also included the following counterclaims: Treble damages due to a fraudulent overcharge; an order requiring petitioner to offer respondent a valid rent stabilized lease at the correct legal rent; damages for breach of the warranty of habitability; an order to correct; and attorney's fees.[FN1]

Respondent has moved for leave to conduct discovery pursuant to CPLR 408. Respondent seeks discovery reaching back to 1993 regarding his first defense and counterclaim related to an alleged fraudulent overcharge.[FN2] Respondent argues that he has interposed a colorable claim of fraud by demonstrating indicia of same, and, thus, respondent should be permitted to discover and inspect documents ranging from 1993 to present "based upon many fraud factors and irregularities captured in the Division of Housing and Community Renewal ("DHCR") rent history . . . ." (NYSCEF Doc No. 10, respondent's attorney's affirmation ¶ 11.) Respondent argues that "while the factors include unexplained rent increases, it goes way beyond that and includes failures to register the apartment at all, registering the apartment as exempt and then reregistering it, failing to register [r]espondent as a tenant for five years and instead registering the apartment as vacant or exempt." (Id.) Respondent states through his attorney that petitioner "made at least one material misrepresentation of fact regarding the legal rent, by charging [r]espondent an illegally high rent in 1997 and unlawfully registering the apartment as vacant." (Id. ¶ 23.) Respondent's attorney further alleges that "petitioner misrepresented a material fact by indicating that the apartment was exempt from rent stabilization from 1999 through 2001 because allegedly [the] J-51 [e]xpired (internal quotation marks omitted)." (Id. ¶ 27.)

As for the elements of fraud, respondent's attorney avers that "petitioner knew its material representations of the status of the subject unit were false." (Id. ¶ 28.) Respondent's attorney further alleges that "[r]espondent reasonably relied upon [p]etitioner's representations about the legality of the rent to [r]espondent's detriment and was injured as a result. When [r]espondent moved into the subject unit, [p]etitioner registered the apartment as vacant and thereafter, unlawfully registered it as deregulated before it re-registered the apartment at an inflated rent. . . . As a result, [p]etitioner charged, and [r]espondent paid an unlawful increased rent. Respondent relied on [p]etitioner's representations as [r]espondent paid some or all the illegally high rent since the inception of his tenancy." (Id. ¶ 30.) Respondent's attorney argues that respondent has met all of the factors generally considered by the court when determining motions for discovery including "a meritorious fraudulent overcharge claim requiring discovery. . . . A need for [the requested] documents since they are crucial to his case, and the documents cannot be easily obtained elsewhere." (Id. ¶¶ 32, 48.) Respondent's attorney argues that "[respondent] is only seeking a few pieces of information narrowly tailored to his case, and there is little or no prejudice because the request is for specific and limited documents." (Id. ¶ 33.) The productions of documents from 1993 to present is warranted, respondent's attorney argues, [*2]"because respondent has made a threshold showing of fraud." (Id. at 8.)

Citing to three Court of Appeals decisions which pre-date both the Housing Stability and Tenant Protection Act ("HSTPA") of 2019, and Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332 (2020), respondent's attorney argues that these cases continue to be good law: Thornton v Baron,[FN3] Matter of Grimm v State of NY Div. of Hous. & Community Renewal Off. of Rent Admin,[FN4] and Conason v Megan Holding.[FN5] Respondent also cites to three decisions by Housing Court judges issued in 2020, just weeks after the decision in Regina was published, and before additional guidance had been handed down from appellate courts. (Id. ¶ 38.)

Petitioner opposes on the grounds that respondent impermissibly seeks to pierce the four-year statute of limitations. Arguing that Regina holds that the only way to consider information from 1993 would be a demonstration of significant indicia of fraud, petitioner argues that respondent has failed to do so. Respondent, petitioner contends, has failed to plead and/or demonstrate the common law elements of fraud as required by Regina.[FN6] Petitioner argues that respondent's reliance on Grimm and Thornton as precedent that overcharge claims are subject to a lesser showing of indicia of fraud is misplaced. The subsequent holding in Regina, petitioner contends, clarified that the Court of Appeals intended demonstration of sufficient indicia of "common law" fraud. Petitioner cites to Burrows v 75-25 153rd St., LLC, 215 AD3d 105 (1st Dept 2023), which dismissed a fraudulent overcharge claim on the basis that "inflation of the legal regulated rents was evident from the face of the registration statements on which plaintiffs' claims are based." (Burrows, 215 AD3d at 112; NYSCEF Doc No. 16, petitioner's affirmation in opposition ¶ 30.) Petitioner argues that respondent relies only on the DHCR registration history to support his claim that petitioner sought to fraudulently overcharge him, which is "improper and precludes the granting of discovery of rental records outside the four-year limitation." (NYSCEF Doc No. 16, petitioner's affirmation in opposition ¶ 37.) Petitioner observes that respondent's affidavit nowhere alleges that he reasonably relied on any misrepresentations and suffered injury as a result. (Id. ¶ 36.) "[Respondent] never actually states how [p]etitioner intentionally mislead [sic] [r]espondent as to the rent stabilized status of the apartment to his detriment and/or harm/injury." (Id. ¶ 34.)

In reply, respondent again concedes that "[r]espondent's fraudulent overcharge allegation is based upon many fraud factors and irregularities captured in the [DHCR] rent history and in other publicly available records for the subject apartment." (NYSCEF Doc No. 18, respondent's attorney's affirmation in reply ¶ 5.) Respondent argues that he need not "prove" fraud at this juncture, and that the numerous irregularities apparent on the face of the DHCR printout "viewed as a whole, which together demonstrate a sufficient prima facia showing of fraud." (Id. ¶¶ 24-25.) Respondent advances that Burrows is distinguishable because there, the "tenants never actually paid the illegally high rent because they were only charged a lower preferential rent[.]" [*3](Id. ¶ 29.) Here, "[respondent] paid the unlawfully inflated rent as [p]etitioner stopped charging preferential rent in 2007." (Id.) Respondent does not specifically address the analysis of the "justifiable reliance" element of common law fraud set forth in Burrows.

DISCUSSION

Burrows v 75-25 153rd St., LLC, 215 AD3d 105 (1st Dept 2023) — A Realistic View of the Common Law Fraud Element of Justifiable Reliance?

On June 15, 2019, the HSTPA effected sweeping changes to the universe of overcharge complaints by legislating that tenants can look back to the first reliable rent registration to establish an overcharge, even if it were 25 or 35 years in the past, and even without a demonstration of fraud. (L 2019, ch 36, § 1, part F, § 4). Ten and a half months later, the Court of Appeals in Regina narrowed the reach of the HSTPA by precluding, based on a constitutional analysis, retroactive application of the HSTPA to overcharge complaints. Pre-HSTPA, "review of rental history outside the four-year lookback period was permitted only in the limited category of cases where the tenant produced evidence of a fraudulent scheme to deregulate and, even then, solely to ascertain whether fraud occurred." (Regina, 35 NY3d at 355.) To plead fraud, a tenant must "adequately allege[] a misrepresentation or failure to disclose a material fact, falsity, scienter, justifiable reliance . . . and damages (emphasis added)." (Kaufman v Cohen, 307 AD2d 113, 121 [2003]; see also Regina.)[FN7]

Numerous decisions have opined that the type of fraud contemplated by Regina is "common law fraud" and have embraced the infamous "footnote seven" as well as what is perceived to be the Regina Court's explanation of the kind of fraud in Thornton v Baron, 5 NY3d 175 (2005), Matter of Grimm v State of NY Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358 (2010), and Conason v Megan Holding, LLC, 25 NY3d 1 (2015). In 435 Cent. Park W Tenant Assn. v Park Front Apts., LLC, 2023 NY Slip Op 30799 (U), *9 (Sup Ct, New York County 2023), the court observed on remittitur from the Appellate Division First Department, "the First Department, Second Department, and trial courts have all frequently analyzed a showing of fraud according to the common law elements laid out by the Court of Appeals in Regina[.]" In Casey v Whitehouse, 39 NY3d 1104 (2023), the Court of Appeals unanimously reversed the Appellate Division First Department, which upheld the lower court's finding that fraud had been properly pleaded. In its brief to the Court of Appeals, the landlord-appellant argued "Supreme Court's sua sponte finding of fraud resulted from its mistaken belief that fraud in a rent overcharge case fundamentally differs from a claim of common law fraud." (Brief for defendants-appellants and third-party plaintiffs-appellants in Casey v Whitehouse Estates, Inc., 39 NY3d 1104 [2023], *31, available at 2023 WL 2529525.) In reversing the Appellate Division, the Court implicitly rejected a distinction between common law fraud, and fraud in the context of overcharge and unlawful deregulation claims.

The interpretation of Regina as defining and clarifying prior law is rooted in the following introductory sentence which refers to Thornton, Grimm, and Conason, to wit, "The rule that emerges from our precedent is that . . . [.]" (Regina at 355.) Unsurprisingly, judges [*4]differ among themselves regarding whether fraud in the context of fraudulent overcharge claims means common-law fraud or some other kind of fraud. (See Aras v B-U Realty Corp., — NYS3d &mdash, 2023 NY Slip Op 04917, *18 [1st Dept 2023].) In Aras, two dissenting justices opined that Regina applies an overly broad definition of common-law fraud and misinterprets the holdings in Thornton, Grimm, and Conason.[FN8]

A trial court is charged with upholding and applying controlling law. Accordingly, this court has followed Regina's progeny and consistently held that fraud in overcharge cases refers to common-law fraud, which must be specifically pleaded. In Housing Court, where discovery is available only by leave of court, leave to conduct discovery is inextricably bound to proper pleading.[FN9] As such, this court has held that, as long as a tenant properly pleads in detail from personal knowledge the elements of fraud as set forth in Regina,[FN10] a tenant may obtain leave to conduct discovery for documents outside of the lookback period based on the fraud exception to the lookback rule of the former CPLR 213-a.[FN11]

However, Burrows has changed the game by upping the ante. In the wake of a long list of decisions from Housing Court on up to the Court of Appeals, all of which concur that fraud in the context of overcharge claims must be pleaded with the same rigor as common-law fraud claims, Burrows was decided, parsing a singular and peculiarly vexing aspect of the elements of fraud: justifiable reliance.

In dismissing the plaintiff's fraud claim, the Burrows court noted:

"DHCR's rental histories of the subject apartments (which are part of the record and referenced in the complaint) document that the registrations in question identified both a higher legal regulated rent and a lower preferential rent that the tenant actually paid. It is undisputed that this rental history has been available for public inspection at all relevant times. Thus, the inflation of the legal regulated rents was evident from the face of the registration statements on which plaintiffs' claims are based." (Burrows at 112.)

Accordingly, the Burrows court held that "disclosure in the publicly available rental histories of the discrepant figures for legal regulated rent and preferential rent negates any inference of fraud as a matter of law (emphasis added)." (Id. at 113.)

In footnote 6 of the Burrows decision, the court notes that "none of plaintiffs' allegations suggest that any of them ever paid a rent based on the inflated initial legal regulated rent registered for his or her apartment by defendant's predecessor in interest (internal quotation marks omitted)." Because all elements of law must be pleaded, the inability to demonstrate injury would generally, in and of itself, negate a claim of fraud and distinguish Burrows from cases where a tenant is actually overcharged, as argued by respondent herein. Loss causation is a well-established requirement of a common-law fraudulent inducement claim for damages. The Court of Appeals long ago noted that "[t]o give rise, under any circumstances, to a cause of action, either in law or in equity, reliance on the false representation must result in injury . . . [I]f the fraud causes no loss, then the plaintiff has suffered no damages (internal citations and quotation marks omitted)." (Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 NY3d 569, 580—581 [2018]; 435 Cent. Park W Tenant Assn. v Park Front Apts., LLC, 2023 NY Slip Op 30799 [U], *11 [based on "the plethora of binding precedent" finding that a tenant must show injury to prove fraud].)

Notwithstanding this binding precedent—that the element of injury is indispensable in fraud cases—the Burrows court stated, "Given that there was no deception [as a matter of law] we need not consider [the landlord's] further argument that it has presented conclusive documentary evidence that plaintiffs were never actually overcharged (emphases added)." (Burrows, 215 AD3d 105, 114 n 6.) Thus, according to Burrows, the availability of public records alone precludes a claim of fraudulent overcharge for the simple reason that any tenant who executes a lease has the theoretical ability, indeed duty, to review the publicly available DHCR rent registration history. Going further, Burrows held that a fraudulent overcharge claim is time-barred where "neither [the tenant] nor their predecessors in interest could have reasonably relied upon the inflated legal regulated rents on the registration statements (emphasis added)." (Id. at 109.) Burrows cites to Kostic v New York State Div. of Hous. & Community Renewal, 188 AD3d 569, 570 (1st Dept 2020), where the error is plain on the face of the statement, there can be no justifiable reliance. (Burrows, 215 AD3d at 113.) However, Kostic found that a tenant who had been continually in place when an exit registration was filed, could not have relied on the impropriety of the exit registration. The Kostic court had no occasion to speak to the justifiable reliance of predecessor tenants.

Referring to Burrows, the Aras dissent notes, "Of particular significance is the element of reliance, which at least one decision suggests should be examined strictly with respect to the tenant or their predecessors." (Aras v B-U Realty Corp, 2023 NY Slip Op 04917, *18 [1st Dept 2023, Gesmer, J. and Rodriguez, J. dissenting].) Relevant to this court's proposition of a landlord-tenant-Housing Court-centric view of justifiable reliance, the Aras dissenters posit, inter alia, that Grimm, Thornton, and Conason either did not analyze justifiable reliance, or that justifiable reliance could not be demonstrated because the complaining tenant participated in the fraud. (Aras, 2023 NY Slip Op at *19-20.) As stated above, the Burrows court's focus on, and interpretation of, justifiable reliance also disregards the common-law element of fraud most relevant to an overcharge claim, to wit, injury. By disregarding the element of injury to establish a fraud claim, and exalting the justifiable reliance element of fraud over all others, the Burrows court has ruled contrary to the axiom that in a fraud case, all elements of fraud must be pleaded. [*5]Indeed, the Burrows court has expressed a rule that the Court of Appeals shunned before Regina was handed down. As stated in Thornton,

"The dissent would ignore defendants' fraudulent conduct and fix the rent at an amount likely soon to result in the apartment's permanent removal from rent stabilization, thereby rewarding the owner's wrongdoing. Under the dissent's rule, a landlord whose fraud remains undetected for four years—however willful or egregious the violation—would, simply by virtue of having filed a registration statement, transform an illegal rent into a lawful assessment that would form the basis for all future rent increases." (Thonrton, 5 NY3d 175, 181.)

Still, it is currently the controlling law in the First Department. While this court is bound to follow Burrows and will continue to do so pending further guidance, the implications of the Burrows court's definition of justifiable reliance are vulnerable to unreasonable application in light of the relationships and forums in which fraudulent overcharge claims arise.

Justifiable Reliance and the Reality of Landlord-Tenant Relationships and Eviction Proceedings—An Alternative View

By taking numerous relevant factors into consideration, which were not considered in Burrows, this court posits as a matter of dicta that it is possible to plead common-law fraud so long as the element of justifiable reliance is considered in the context of the true nature of landlord-tenant relationships, and the reality of Housing Court.

In the seminal case of Higgins v Crouse, 147 NY 411, 415 (1895), the Court of Appeals reversed the General Term's reversal of the Special Term, which had found that the plaintiff was not negligent in failing to discover a fraud earlier. The Court recognized that there must be flexibility when determining a person's accountability for failing to investigate a fraud:

"[A] case may arise where he knows none of the facts, where no circumstance has occurred calculated to arouse his suspicion or disturb his confidence or suggest the need of inquiry. In such a case I think we are bound to say that he owes no duty of diligence to discover a fraud which he has no reason to suspect, and is not negligent for failing to enter upon an investigation which no fact within his knowledge indicates to be necessary or prudent (emphasis added)." (Crouse, 147 NY at 415.)

This common-sense observation regarding the common-law rule is embodied in CPLR 213 (8), which provides an exception to the six-year limitations period, and states that in "an action based upon fraud[,] the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it (emphasis added)." Current statutory law thus recognizes that there are situations where a rigid limitations period warrants extension in common-law fraud cases. Prior to Burrows, this court would have believed this to be the rule.

Both Crouse and CPLR 213 (8) are apropos to fraudulent overcharge claims, especially in Housing Court. An eviction proceeding comprises many interrelated parts, all of which are present in varying degrees before, during, and after the proceeding is commenced. Relevant factors that merit consideration when assessing a fraudulent overcharge claim include but are not limited to: (1) the disparate bargaining power between landlords and tenants at lease execution; (2) a prospective and current tenant's relative lack of knowledge of real estate law compared to a [*6]sophisticated business entity that owns, as in this case, 288 units,[FN12] and whose principal is associated with 143 buildings in New York City;[FN13] (3) the shortage of affordable housing; (4) the public policy behind rent regulation; and (5) the statistical significance of receiving legal representation and/or advice through UAC.[FN14] Following Burrows, even with the advantage of counsel, it will almost always be too late to claim justifiable reliance. Pursuant to the current systems in place in Housing Court, a respondent only benefits after their first court appearance from the knowledge imparted by an attorney when they are already at risk of eviction. These attorneys are contracted by the city to "level the playing field in Housing Court and give tenants a chance to assert their legal rights."[FN15] This factor bears serious consideration if UAC is to have its intended effect.

Moreover, in an eviction proceeding involving an alleged fraudulent overcharge claim, we are not speaking only of a singular tenant's injury and damages. Courts have opined that what is also at stake is a regulatory scheme intended to keep existing rent stabilized housing stock affordable and provide certainty to current and future stakeholders; and to preclude a fraud claim on the basis that a predecessor tenant ostensibly had the ability to assert same, is counter to the enduring public policy of this state. As stated in 390 W. End Assocs. v Harel, 298 AD2d 11 (1st Dept 2002), "The point is not to protect just a tenant, but to ensure the viability of the rent regulation system which protects tenancies in general, provides predictability to landlords, and significantly enhances the social, economic and demographic stability of New York City." (Harel, 298 AD2d at 16; see also Drucker v Mauro, 30 AD3d 37, 40 [1st Dept 2006] [finding an agreement to circumvent the rent stabilization law by paying higher than the legal regulated rent is void at its inception even if the agreement benefits the tenant, because it can "adversely affect both the legal rent and the regulated status of the dwelling unit for future occupants."])

An ordinary tenant is not knowledgeable of the fact that they can request their DHCR printout until they receive advice and/or representation in court. It is highly plausible that the [*7]average tenant would not have the sophistication to request DHCR records after renting an apartment, and, even if they did request same, that they would understand the significance of the entries on the document. This is especially true if there no information is provided that public records are available for inspection at DHCR. (See e.g. Sharma v Walia, 201 AD3d 609, 610 [1st Dept 2022] [dismissing a fraud claim on a pre-trial motion to dismiss for failure to allege justifiable reliance where "[t]he facts regarding the subleases were not peculiarly within defendant's knowledge; on the contrary, plaintiff [a sophisticated business person leasing three separate restaurants] could have known the relevant facts had she simply read the leases, which she concedes she did not do."].)[FN16]

The standard form vacancy lease advises that additional rights and obligations of the parties are set forth in an attached rider. (See petitioner's exhibit 2 at 35, NYSCEF Doc No. 16.) The standard form rent stabilized lease rider does state that "[a]ny tenant who believes that the rent they are being charged may be unlawful may consider requesting a rent history of their apartment from DHCR (www.hcr.ny.gov). After reviewing the rent history, the tenant can make an informed decision whether to file form RA-89 'Tenant's Complaint of Rent and/or Other Specific Overcharges in a Rent Stabilized Apartment.'"[FN17] Thus, in case where a landlord fails to include the lease rider to rent stabilized leases, the tenant is conceivably deprived of this valuable information and is not on notice that they have the right to investigate and potentially challenge the legality of their rent.

Moreover, it is not possible to obtain a DHCR rent registration history printout until after a prospective tenant has signed the lease. It is ironic that the "public record" which now precludes a demonstration of justifiable reliance as a matter of law is not available for an apartment-seeker to review prior to contracting to pay the rent charged. The general principle that a party "must take [ ] reasonable steps to protect itself against deception requires a plaintiff claiming [fraud] . . . to allege that, before entering into the transaction, it availed itself of the opportunity to verify the [other party's] representations through an examination of the business's books and records (emphasis added; internal citations and quotation marks omitted)." (Basis Yield Alpha Fund Master v Morgan Stanley, 136 AD3d 136, 141-142 [1st Dept 2015].) However, landlords are not required to open their books and records to a tenant in a summary eviction proceeding absent a court order pursuant to CPLR 408; and free legal advice and representation are not available to most tenants until they are already at risk of eviction.

Respondent's affidavit is testament to the observation that the ability to retain counsel and advice can be a defining and illuminating moment.[FN18] After submitting an answer without representation, and on the first date having had an opportunity to connect with counsel through UAC, respondent avers:

"I retained Manhattan Legal Services to represent me in the instant proceeding. They [*8]inspected my DHCR rent history and explained to me the many inconsistencies and issues they saw in my history. They informed me that I have a potential overcharge and deregulation claim. Though I have previously inspected my DHCR rent history, I was unable to realize such issues in my rent history and recognize potential claims prior to obtaining their representation." (NYSCEF Doc No. 9, Odumosu affidavit ¶ 6.)

Petitioner's recitation of the history of the proceeding also bears out the change in circumstances which prompted respondent to assert a fraudulent overcharge:

"Mr. Odumosu filed a pro se answer on or around March 2, 2023. Thereafter, Mr. Odumosu retained Manhattan Legal Services (hereinafter "MLS") as counsel. After MLS's first appearance on May 11, 2023, the case was adjourned to July 13, 2023, and Respondent was granted leave to amend his answer and a motion schedule was set. MLS filed an amended answer on June 9, 2023. The amended answer alleged, among other things, that Mr. Odumosu has been fraudulently overcharged (NYSCEF Doc No. citations omitted.)" (NYSCEF Doc No. 10, petitioner's attorney's affirmation in opposition ¶¶ 6-10.)

The foregoing gives rise to the following questions: If a tenant alleges that they only knew to obtain a DHCR rent registration history, or were only able to understand it, upon obtaining counsel and/or advice, is that not when the ordinary tenant with no special expertise in landlord-tenant law could be expected with reasonable diligence to discover a fraud? Assuming competent counsel, should not that be the juncture at which justifiable reliance is no longer reasonable? Are not knowledge, information, and "fair competition" the hallmarks of UAC?[FN19] After Burrows, it is questionable whether a tenant who rented an apartment prior to the passage of the HSTPA can ever prove fraud if the very existence of a public record forecloses further inquiry, even though the tenant and their predecessors may not have known, or had the means to know, how to investigate further.[FN20]

This court has previously held that, pursuant to Regina and its progeny, a tenant must properly plead common-law fraud in order to obtain discovery past the lookback period. While "unassailable proof" of fraud is not required at the pleading stage, it is not "impossible [for respondent] to state in detail" the basis for this essential element. (Pludeman v N. Leasing Sys., Inc., 10 NY3d 486, 491 [2008].) If it were the law that a sworn affidavit addressing the foregoing considerations could work to extend the running of the limitations period pursuant to CPLR 213 (8), then further inquiry would be ripe for discovery and/or trial, rather than, as in Burrows, elimination of the claim at the pleading stage.

It bears mentioning that the confusion and consternation related to fraudulent overcharge claims may soon be moot. In another landmark move, the legislature has passed, as a matter of "public policy," a bill which "seeks to address certain gaps in these laws that persist after [the passage of the HSTPA]. . . ." (2023 NY Assembly Bill A06216.) The sponsor memo states that "[t]his amendment will help clarify and codify the standard for applying a fraud exception to the four-year rule that was in place before HSTPA was enacted, in light of Burrows v 75-25 153rd Street LLC." (Assembly Mem in Support of 2023 NY Assembly Bill A06216.) The amendments propose the following language, which the Governor has until December 31, 2023 to sign:

"[A]n owner shall be deemed to have committed fraud if the owner shall have committed a material breach of any duty arising under statutory, administrative or common law, to disclose truthfully to any tenant, government agency or judicial tribunal or administrative tribunal, the rent, regulatory status or lease information, for purposes of claiming an unlawful rent or claiming to have deregulated an apartment, whether or not the owners conduct would be considered fraud under the common law, and whether or not a complaining tenant specifically relied on untruthful or misleading statements in registrations, leases, or other documents." (2023 NY Assembly Bill A06216.)

If signed, the law would take effect immediately and would apply to all pending proceedings.

Respondent's Motion

Respondent is correct that at this juncture he need not prove fraud. (See discussion supra; see also Sargiss v Magarelli, 12 NY3d 527, 530-531 [2009] ["[A]lthough under CPLR 3016 (b) the complaint must sufficiently detail the allegedly fraudulent conduct, that requirement should not be confused with unassailable proof of fraud . . . . (internal quotation marks and citation omitted)"].)

However, petitioner is correct that respondent's sworn affidavit does not sufficiently plead the necessary elements of fraud. This would hold true even if the factors set forth above were considered. While respondent states that he was unable to understand the DHCR rent registration history until he obtained a lawyer, respondent's affidavit does not address when he knew to request and review his DHCR rent registration history, or how long ago he previously examined the DHCR rent registration history. Neither does respondent's affidavit explain how he was "lull[ed] . . . into inaction to challenge the rent." Only his attorney surmises that fact. (NYSCEF Doc No. 10, petitioner's attorney's affirmation ¶ 22.) Moreover, while it is possible to assume that respondent alleges harm, that is not the court's function, and respondent does not specifically plead facts regarding how he was injured. Although respondent's answer is more detailed, it is not verified and thus cannot substitute for an affidavit pursuant to CPLR 105 (u)."[FN21] (Clinton-178 Towers LLC v Chapple, 58 Misc 3d 198, 206 [Civ Ct, Bronx County 2017] [ a verified pleading may be substituted for an affidavit in many circumstances where the latter is required]; see also A & J Concrete Corp. v Arker, 54 NY2d 870, 872 [1981].) Consequently, respondent's affidavit is inadequate to rehabilitate his unverified answer; and his attorney's affirmation lacks probative value of the facts necessary to establish a need for discovery related [*9]to a fraudulent overcharge claim.[FN22] Thus, in light of the rule in Burrows, and respondent's pleading infirmities, respondent has failed to properly plead a cause of action sounding in a fraudulent overcharge.

CONCLUSION

Accordingly, it is

ORDERED that respondent's motion for leave to conduct discovery reaching back to 1993 regarding a fraudulent overcharge is DENIED; and it is further

ORDERED that petitioner shall serve respondent with a copy of this decision and order by filing on NYSCEF with notice of entry within 3 business days.

The parties are to appear in Part F, Room 523, of the New York County Civil Courthouse on November 15, 2023, at 9:30 a.m. for all purposes, including settlement or trial.

Petitioner shall served respondent with notice of entry of this decision and order.

This constitutes the decision and order of this court.

Dated: October 12, 2023

New York, NY

HON. KAREN MAY BACDAYAN

Judge, Housing Part Footnotes

Footnote 1:The answer is not verified.

Footnote 2:Specifically, respondent seeks the following: "[1] All leases and lease riders for the subject apartment for the years 1993 to the present, including a complete copy of Respondent's lease and all documents executed in connection therewith. [2] All rent records, including ledger books or computer records, showing rents charged and/or paid for the subject apartment for the years 1993 to present. [3] All documents concerning rent for the subject premises from 1993 to the present, including but not limited to: vacancy increases, renewal increases, Major Capital Improvement ("MCI") increases and Individual Apartment Improvement ("IAI") increases. These documents shall include all bills, canceled checks, contracts, and similar documents concerning any alleged improvements in the subject apartment." NYSCEF Doc No. 14 at 5, proposed document demands.

Footnote 3:Thornton v Baron, 5 NY3d 175 (2005)

Footnote 4:Matter of Grimm v State of NY Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358 (2010).

Footnote 5:Conason v Megan Holding, LLC, 25 NY3d 1 (2015).

Footnote 6:"Fraud consists of evidence [of] a representation of material fact, falsity, scienter, reliance and injury (internal quotation marks and citations omitted)." Regina, 35 NY3d 332, 356, n 7.

Footnote 7:Since Regina was decided, courts have clarified that the fraud exception to the four-year look-back restriction applies unlawful overcharge as well as unlawful deregulation claims. 435 Cent. Park W. Tenant Ass'n v Park Front Apts., LLC, 183 AD3d 509, 510 (1st Dept 2020); Montera v KMR Amsterdam LLC, 193 AD3d 102([1st Dept 2021).

Footnote 8:Compare Aras v B-U Realty Corp., — NYS3d &mdash, 2023 NY Slip Op 04917, *17 (1st Dept 2023, Gesmer, J. and Rodriguez, J. dissenting) ("[F]ootnote seven is not dispositive of what a tenant is required to demonstrate in support of a claim that a landlord has engaged in a fraudulent scheme to deregulate an apartment.")

Footnote 9:CPLR 408; New York Univ. v Farkas, 121 Misc 2d 643, 647 (Civ Ct, New York County 1983) (listing as factor to determine whether a party has demonstrated ample need to warrant discovery "[w]hether, in the first instance, the [party] has asserted facts to establish a cause of action. . . . [A] fishing expedition utilized by the landlord for the purposes of formulating a cause of action or by the tenant to establish a defense, should never be permitted . . . .")

Footnote 10:Regina, 35 NY3d 332, 356 n 7.

Footnote 11:When overcharge claims are based upon alleged conduct that long predates the enactment of the HSTPA, those claims are governed by the pre-HSTPA version of CPLR 213-a, which states that "[a]n action on a residential rent overcharge shall be commenced within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of any overcharge may be based upon an overcharge having occurred more than four years before the action is commenced. This section shall preclude examination of the rental history of the housing accommodation prior to the four-year period immediately preceding the commencement of the action." Former CPLR 213-a.

Footnote 12:See the Department of Housing Preservation and Development search engine at https://hpdonline.nyc.gov/hpdonline/, last visited October 3, 2023, which indicates that the four buildings between 41 Saint Nicholas Terrace and 47 Saint Nicholas Terrace, all owed by 41-47 Nick, LLC, each comprise 72 Class A units.

Footnote 13:See JustFix website portfolio search available at https://whoownswhat.justfix.org/en/address/MANHATTAN/111/EAST%207%20STREET/portfolio (last accessed October 5, 2023.)

Footnote 14:In fiscal year 2021, "OCJ-funded legal organizations provided legal assistance to over 89,000 New Yorkers in approximately 42,000 households across New York City facing housing challenges including eviction, disrepair, landlord harassment and other threats to their tenancies." This legal assistance allowed for "tenants . . . to remain in their homes in 84 percent of cases citywide . . . . ." New York City Office of Civil Justice, 2021 Annual Report at 16-17, 19, available at https://www.nyc.gov/assets/hra/downloads/pdf/services/civiljustice/OCJ_Annual_Report_2021.pdf (last accessed October 12, 2023).

Footnote 15:Hearing Testimony for Universal Access to Legal Services Law, March 27, 2023, available at https://www.nycbar.org/member-and-career-services/committees/reports-listing/reports/detail/testimony-right-to-counsel-hearing (last accessed October 4, 2023.)

Footnote 16:"Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts." Trepuk v Frank, 44 NY2d 723, 725 (1978).

Footnote 17:New York City LEASE Rider for Rent Stabilized Tenants, revision date: March 2023, available at https://hcr.ny.gov/system/files/documents/2023/03/ra-lr1-03-2023-fillable.pdf (last accessed October 12, 2023).

Footnote 18:See supra, n 14.

Footnote 19:"Fair competition" is defined as "competition reasonable in view of the interest of those competing and the public and not involving practices condemned by law as inimical to the public interest." Merriam-Webster.com Dictionary, fair competition [https://www.merriam-webster.com/dictionary/fair%20competition] [Note: online free version].

Footnote 20:In Norddeutsche Landesbank Girozentrale v Tilton, 149 AD3d 152 (1st Dept 2017), the court espoused: "The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered the fraud, such that the two-year statute of limitations begins to run on a fraud claim, turns on whether the plaintiff was possessed of knowledge of facts from which the fraud could be reasonably inferred (emphasis added) (internal citation and quotation marks omitted)." (Tilton, 149 AD3d at 159, Andrias, J., dissenting.)

Footnote 21:In the immediate case, it is not relevant that petitioner never objected to the lack of verification of the answer, as that is not the issue here. The issue here is whether there exists a sworn affidavit upon which to establish significant indicia of fraud.

Footnote 22:See Iandoli v Lange, 35 AD2d 793, 794 [1st Dept 1970] ["The defendant's attorney's affidavit is lacking in probative value. It was not made on personal knowledge of the facts. . . . We find, therefore, that the defendant has failed to show that she has a bona fide defense—a burden imposed upon her by law."]