| Casey v Whitehouse Estates, Inc. |
| 2023 NY Slip Op 01351 [39 NY3d 1104] |
| March 16, 2023 |
| Court of Appeals |
| Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. |
| As corrected through Wednesday, May 10, 2023 |
| Kathryn Casey et al., Respondents, et al., Plaintiffs-Intervenors, v Whitehouse Estates, Inc., et al., Appellants. Whitehouse Estates, Inc., et al., Third-Party Plaintiffs-Appellants, v Roberta L. Koeppel et al., Third-Party Defendants. |
Argued February 7, 2023; decided March 16, 2023
Casey v Whitehouse Estates, Inc., 197 AD3d 401, reversed.
Rosenberg & Estis, P.C., New York City (Jeffrey Turkel, Howard W. Kingsley and Ethan R. Cohen of counsel), for appellants.
Himmelstein McConnell Gribben & Joseph LLP, New York City (Ronald S. Languedoc and William Gribben of counsel), and Emery Celli Brinckerhoff Abady Ward & Maazel LLP, New York City, for respondents.
Katsky Korins LLP, New York City (Adrienne B. Koch, Mark Walfish and Benjamin Cohen of counsel), for Rent Stabilization Association of NYC, Inc. and another, amici curiae.
Newman Ferrara LLP, New York City (Lucas A. Ferrara and Roger A. Sachar of counsel), for Housing Rights Initiative, Inc., amicus curiae.
Memorandum.
The order of the Appellate Division insofar as appealed from should be reversed, with costs, plaintiffs' motion insofar as it sought summary judgment declaring that their legal regulated rent should be calculated according to the Rent Stabilization Code's default formula denied, the case remitted to Supreme Court for further proceedings in accordance with this memorandum, and the certified question answered in the negative.{**39 NY3d at 1106}
On October 14, 2011, plaintiffs, tenants of a building located in Manhattan, brought a class action against defendants, the building's owners, managing agents, and landlords seeking, in relevant part, rent overcharges. After extensive discovery, plaintiffs moved for summary judgment, alleging that defendants engaged in fraud and failed to produce adequate rent records, therefore requiring use of the default formula to determine any overcharge. Supreme Court granted plaintiffs' motion (2017 NY Slip Op 33319[U] [Sup Ct, NY County 2017]). A divided Appellate Division affirmed Supreme Court's order "which, insofar as appealed from as limited by the briefs, granted plaintiffs' motion for summary judgment declaring that their legal regulated rent should be calculated according to the Rent Stabilization Code's default formula and denied defendants' cross motion to determine the amount of use and occupancy" (197 AD3d 401, 401 [1st Dept 2021]).[FN*]
Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal was decided after Supreme Court granted plaintiffs' motion (35 NY3d 332 [2020]). There, this Court made clear that, under the pre-Housing Stability and Tenant Protection Act of 2019 law applicable here,
"review of rental history outside the four-year lookback period [i]s 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—not to furnish evidence for calculation of the base date rent or permit recovery for years of overcharges barred by the statute of limitations" (id. at 355 [citation omitted]).
In fraud cases, because the reliability of the base date rent has been tainted, "this Court sanctioned use of the default formula to set the base date rent" (id.; see Matter of Grimm v State of N.Y. Div. of Hous. & Community Renewal Off. of Rent Admin., 15 NY3d 358, 367 [2010]). Regina also held that
"[d]eregulation of . . . apartments during receipt of J-51 benefits was not based on a fraudulent misstatement of fact but on a misinterpretation of the{**39 NY3d at 1107} law [and so] a finding of willfulness is generally not applicable to cases arising in the aftermath of Roberts [and] [b]ecause conduct cannot be fraudulent without being willful, it follows that the fraud exception to the lookback rule is generally inapplicable to Roberts overcharge claims" (Regina, 35 NY3d at 356 [internal quotation marks and citations omitted]).
Plaintiffs failed to meet their burden on summary judgment. Defendants' deregulation of the apartments was based on this same "misinterpretation of the law" involved in Regina and therefore that conduct did not constitute fraud (id.). Defendants' subsequent re-registering of the apartments occurred after the four-year lookback period, and plaintiffs have failed to offer evidence that it somehow affected the reliability of the actual rent plaintiffs paid on the base date.
For purposes of calculating overcharges, where it is possible to determine the rent "actually charged on the base date"—here October 14, 2007—that amount should be used and rent increases legally available to defendants pursuant to the Rent Stabilization Law during the four-year period should be added (id. at 355-356). We agree with the dissent below that "[i]t is unclear whether the records made available by either party provide enough information to determine the base date rent in accordance with Regina for any of the subject apartments" (197 AD3d 401, 411 [2021, Gische, J., dissenting]). On remittal, that assessment must be made for each apartment.
Order insofar as appealed from reversed, with costs, plaintiffs' motion insofar as sought summary judgment declaring that their legal regulated rent should be calculated according to the Rent Stabilization Code's default formula denied, case remitted to Supreme Court, New York County, for further proceedings in accordance with the memorandum herein, and certified question answered in the negative.
Acting Chief Judge Cannataro and Judges Rivera, Garcia, Wilson, Singas and Troutman concur.