Civil Court of the City of New York, Kings County, November 29, 2023

Communities Resist, Brooklyn, for respondents.

Kucker Marino Winiarsky & Bittens, LLP, New York City, for petitioner.

Respondents' motion seeking discovery is granted to the extent discussed below.

This is a summary, "no grounds" holdover proceeding. Petitioner alleges that the apartment was deregulated due to high rent deregulation.

Respondents dispute this and, among other defenses, allege both overcharge and a challenge to the regulatory status. On the basis of the challenge to the regulatory status, respondents move the court for discovery, to which petitioner opposes.

Respondents' motion raises two questions. First, should discovery be granted in this status challenge case? Second, if discovery is granted, what should be the scope of the discovery? The court addresses each question in turn.

a. Should discovery be granted?

In a summary proceeding, the party seeking discovery is required to obtain leave of court. When deciding whether to{**82 Misc 3d at 301} grant discovery, courts employ the ample need test first announced in New York Univ. v Farkas (121 Misc 2d 643 [Civ Ct, NY County 1983]).

Under that test, the proponent of discovery must establish several factors, not all of which need to be shown (Mautner-Glick Corp. v Higgins, 64 Misc 3d 16, 18 [App Term, 1st Dept 2019] [noting that "courts consider a number of factors, not all of which need to be present in every case"]).

In its simplest form, the Farkas test requires the movant to show a genuine need for information that cannot be obtained other than from one of the parties in the case or from a third party (Farkas, 121 Misc 2d at 647). If the movant can satisfy this requirement, then the court should grant discovery but prevent undue prejudice to the other side by limiting discovery and managing schedules for disclosure.

Since speed and economy are the underlying concerns, there are few obstacles to granting discovery if discovery will likely result in greater efficiency rather than less (see Malafis v Garcia, 2002 NY Slip Op 40180[U] [App Term, 2d Dept, 2d & 11th Jud Dists 2002]).

Recent cases have further streamlined the Farkas test with this policy in mind. For example, 50th St. HDFC v Abdur-Rahim evaluates whether granting discovery will speed [*2]a case towards a fair resolution, whether by stipulation or trial (50th St. HDFC v Abdur-Rahim, 72 Misc 3d 1210[A], 2021 NY Slip Op 50693[U] [Civ Ct, Kings County 2021]).

In other words, the modern approach to discovery in eviction proceedings requires the court to determine whether the movant has established a genuine need for disclosure and whether granting disclosure will create more efficiency. If the answer to these questions is yes, then the court should grant discovery but avoid prejudice by crafting an order that limits the discovery (see e.g. 717 Sterling Corp. v Cook, 78 Misc 3d 1224[A], 2023 NY Slip Op 50345[U] [Civ Ct, Kings County 2023]).

The court starts with the proposition that where a tenant asserts a challenge to an apartment's regulatory status, discovery is technically "unlimited." Although as discussed below this is not literally true, it is a good place to begin the analysis.

"Regardless of its age, an apartment's rent history is always subject to review to determine whether a unit is rent-stabilized" (Matter of Kostic v New York State Div. of Hous. & Community Renewal, 188 AD3d 569, 569 [1st Dept 2020]).{**82 Misc 3d at 302}

This rule dates back to at least 2005 and has been followed ever since (see East W. Renovating Co. v New York State Div. of Hous. & Community Renewal, 16 AD3d 166, 167 [1st Dept 2005] ["DHCR's consideration of events beyond the four-year period is permissible if done not for the purpose of calculating an overcharge but rather to determine whether an apartment is regulated"]; see also Gersten v 56 7th Ave. LLC, 88 AD3d 189, 199 [1st Dept 2011] [holding that "a tenant should be able to challenge the deregulated status of an apartment at any time during the tenancy" and that "landlords must prove the change in an apartment's status from rent-stabilized to unregulated even beyond the four-year statute of limitations for rent overcharge claims"]).

In AEJ 534 E. 88th, LLC v New York State Div. of Hous. & Community Renewal, the Appellate Division observed that the Court of Appeals

"carefully distinguished between those actions that present 'challenges to the deregulated status of an apartment' as opposed to those concerning overcharge claims. In making that distinction the Court observed that the Rent Stabilization Law of 1969 (RSL) (Administrative Code of City of NY) has long placed a time limitation (i.e., statute of limitations, CPLR 213-a) on the look back period that applies to overcharge claims. There is no corresponding restriction in either the former or current version of RSC § 2526.1 (a) (3) (iii). Indeed, there is no time restriction at all" (AEJ 534 E. 88th, LLC v New York State Div. of Hous. & Community Renewal, 194 AD3d 464, 469-470 [1st Dept 2021] [citation and brackets omitted], citing Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal, 35 NY3d 332, 351 [2020]).

There is a statute of limitations with respect to overcharge claims, which can be set aside upon a showing of a colorable claim of fraud. Conversely, there is no statute of limitations with respect to a status challenge, and the tenant does not have to allege fraud. Confusion arises because tenants will often state both a status challenge and an overcharge claim based on alleged fraud, and the standards for granting discovery are different depending on whether the issue is viewed through the lens of fraud or the lens of a status challenge.

That is the situation in the instant case. Respondents have articulated a challenge to the regulatory status and have alleged{**82 Misc 3d at 303} fraud. However, as petitioner's opposition points out, [*3]respondents have not properly pleaded fraud. In the context of landlord-tenant practice, a proper allegation of fraud requires that the tenant plead five elements: (1) a representation of material fact by the landlord; (2) that the representation was false; (3) that the landlord should have known that the representation was false, that is the landlord had "scienter," meaning a mental state consisting in an intent to deceive, manipulate, or defraud; (4) that the tenant relied upon the false material misrepresentation; and (5) that the tenant suffered injury as a result (Burrows v 75-25 153rd St., LLC, 215 AD3d 105, 109 [1st Dept 2023]).

The tenant must plead these five elements in detail (601 W. Realty, LLC v Algarin, 76 Misc 3d 1228[A], 2022 NY Slip Op 51072[U] [Civ Ct, NY County 2022]; 41-47 Nick LLC v Odumosu, 81 Misc 3d 772 [Civ Ct, NY County 2023]).

Respondents' answer alleges "a fraudulent scheme to mislead the respondents as to the lawful regulatory status of their tenancies by falsely filing incorrect registrations in preparation for bringing this proceeding" (NY St Cts Elec Filing [NYSCEF] Doc No. 6 ¶¶ 39-46). But the answer does not allege reliance in enough detail to satisfy the requirements of Burrows, Algarin, and related authority.

[1] While petitioner is correct that respondents did not properly allege fraud or state a colorable claim of fraud, this does not mean that respondents cannot obtain discovery. Indeed, in light of Kostic and AEJ 534 E. 88th, LLC, it is clear that, upon a good-faith challenge to the regulatory status of an apartment, a court may grant discovery going as far back as necessary.^[FN*] The tenant need not allege fraud, much less demonstrate a colorable claim of fraud. A good-faith challenge to the{**82 Misc 3d at 304} regulatory status of the apartment and a showing of ample need under Farkas are sufficient for a court to grant discovery to a tenant. Put in other terms, the scope of discovery in a status challenge is not limited except by ample need.

Respondents' second affirmative defense (NYSCEF Doc No. 6 ¶¶ 12-15) sets forth a good-faith challenge to the regulatory status of the subject premises.

Although respondents' motion for discovery is not supported by an affidavit, the [*4]answer is verified. Therefore, an affidavit is not required (Clinton-178 Towers LLC v Chapple, 58 Misc 3d 198, 206 [Civ Ct, Bronx County 2017] [granting discovery despite the absence of an affidavit because "a verified pleading may be substituted for an affidavit in many circumstances where the latter is required"]).

Moreover, respondents' claim is supported by documentary evidence in the form of a DHCR (Division of Housing and Community Renewal) rent history printout. The DHCR printout shows "registrations not found" from 1984 to 2012. There are other curiosities, such as the fact that the registrations for 2013 to 2017 were all filed in 2021 (NYSCEF Doc No. 18). By itself, the DHCR printout would perhaps be insufficient to justify a grant of discovery on the basis of an overcharge claim, but it does serve to show that respondents have a good-faith challenge to the regulatory status of the apartment.

The documents relevant to this challenge are in petitioner's hands. Questions of whether claimed renovations actually occurred cannot be addressed at trial in the heat of cross-examination, and respondents cannot frame a defense, or intelligently decide to settle, without examining these documents prior to trial. Thus respondents are entitled to discovery with respect to the claim of improper deregulation.

However, while discovery as to status has no temporal limitation, discovery in a summary proceeding is always limited by CPLR 408, the ample need test, and the requirement that the court craft orders that limit undue prejudice. Thus, the question becomes what should be the scope of discovery.

b. What should be the scope of discovery?

Respondents have requested documents dating from 2000 that fall into eight categories (NYSCEF Doc No. 23).

In summary form these are: (1) the leases for the apartment; (2) registration filings; (3) rent receipts and statements; (4) proof of repairs and improvements to the apartment; (5) documents{**82 Misc 3d at 305} related to an assessment of rents that could be charged; (6) DHCR registrations; (7) MCI (major capital improvements) and IAI (individual apartment improvements) applications with DHCR, and the like; and (8) evidence of rents charged.

Items (2) and (6) are roughly similar, as are items (3) and (8). Thus, the request probably reduces to only six categories of documents.

This request is reasonable. Whether it is six or eight categories, the production of these documents will not unduly prejudice petitioner. The affidavit of petitioner's agent does not state that these documents would be difficult to copy and produce.

[2] However, respondents do not explain why documents dating back to 2000 would be relevant to issues in this proceeding. In order to limit prejudice to petitioner, the court finds that the relevant period starts January 1, 2011, and ends on the date that respondents took occupancy.

This timeframe is appropriate because petitioner's affidavit states that, prior to his purchase of the building, the apartment was used by the former owners and their [*5]family (NYSCEF Doc No. 26 ¶ 7).

The DHCR rent history printout reflects petitioner registered the apartment as having been owner-occupied in 2013 (NYSCEF Doc No. 18).

Thus it makes sense that disclosure should begin in 2011 since this is two years prior to the date that, according to DHCR records, the prior owner's use commenced. Thus disclosure will shed light on whether the apartment was previously leased to a tenant who was not a family member. Although the deregulation event likely occurred after petitioner bought the building it is fitting to grant discovery to just prior to the deregulation event to ensure that respondents receive the information necessary to investigate their claim while also protecting petitioner from the expansive demands that respondents requested.

In similar cases courts have awarded much greater scopes of discovery (cf. 601 W. Realty, LLC v Algarin, 76 Misc 3d 1228[A], 2022 NY Slip Op 51072[U], *2 [granting discovery back to 1988]).

However, in the instant proceeding 2011 is an appropriate starting point. In the event that the documents reveal something unexpected, respondents may seek supplemental discovery, to which petitioner may oppose.{**82 Misc 3d at 306}

For the reasons stated above, respondents are granted leave to conduct discovery as to documents within petitioner's custody and control as stated in respondents' demand for discovery (NYSCEF Doc No. 23). Provided however, the period is limited to January 1, 2011, to the date respondents' lease commenced.

These documents are to be forwarded to respondents' counsel, or otherwise made available, along with an affidavit as to their completeness and veracity, within 45 days of the date of this order.

If any of the documents are not within petitioner's custody and control, then petitioner must forward an affidavit to this effect but still provide whatever documents are within petitioner's custody and control.

The proceeding is marked off calendar pending the completion of discovery. The proceeding may be restored upon notice of motion to counsel or by joint stipulation after securing an available date from court staff.